FIVE STAR QUALITY CARE INC (Form: 10-Q, Received: 10/28/2010 12:12:14)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-16817

FIVE STAR QUALITY CARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland		04-3516029
(State of Incorporation)		(IRS Employer Identification No.)

400 Centre Street, Newton, Massachusetts 02458

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code): 617-796-8387

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filed”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of registrant’s shares of common stock, $0.01 par value, outstanding as of October 28, 2010: 35,723,814.

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FIVE STAR QUALITY CARE, INC.

FORM 10-Q

SEPTEMBER 30, 2010

INDEX

		Page

PART I	Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Balance Sheet — September 30, 2010 and December 31, 2009	1

	Condensed Consolidated Statement of Income — Three and Nine Months Ended September 30, 2010 and 2009	2

	Condensed Consolidated Statement of Cash Flows — Nine Months Ended September 30, 2010 and 2009	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

	Warning Concerning Forward Looking Statements	26

PART II	Other Information

Item 6.	Exhibits	28

	Signatures	29

As used herein the terms “we”, “us”, “our” and “Five Star” include Five Star Quality Care, Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

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Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands, except share data)

(unaudited)

	September 30, 2010			December 31, 2009
ASSETS

Current assets:
Cash and cash equivalents	$	36,709		$	5,017
Accounts receivable, net of allowance of $5,980 and $5,986 at September 30, 2010 and December 31, 2009, respectively	62,492			61,418
Investments in trading securities	—			65,961
Investments in available for sale securities, of which $2,572 and $2,809 are restricted as of September 30, 2010 and December 31, 2009, respectively	12,323			11,893
Restricted cash	6,465			7,597
UBS put right related to auction rate securities	—			8,322
Prepaid expenses and other current assets	18,586			20,162
Total current assets	136,575			180,370

Property and equipment, net	208,955			192,742
Equity investment in Affiliates Insurance Company	5,058			5,000
Restricted cash and investments	17,005			14,670
Goodwill and other intangible assets	15,835			16,182
Other long term assets	4,263			4,136
	$	387,691		$	413,100
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	19,141		$	28,727
Accrued expenses	18,858			20,330
Accrued compensation and benefits	47,323			36,769
Due to affiliates	17,716			17,611
UBS secured revolving credit facility related to auction rate securities	—			39,141
Mortgage notes payable	133			157
Accrued real estate taxes	13,324			9,263
Security deposit liability	11,070			11,215
Other current liabilities	13,454			14,991
Total current liabilities	141,019			178,204

Long term liabilities:
Mortgage notes payable	7,724			12,284
Convertible senior notes	41,065			49,707
Continuing care contracts	2,293			2,438
Accrued self insurance obligations	26,658			21,833
Other long term liabilities	9,592			9,319
Total long term liabilities	87,332			95,581

Commitments and contingencies

Shareholders’ equity:
Preferred stock: none issued	—			—
Common stock, par value $0.01; 35,723,814 and 35,668,814 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively	357			356
Additional paid in capital	297,168			296,654
Accumulated deficit	(144,879		)	(162,275		)
Unrealized gain on investments in available for sale securities	6,694			4,580
Total shareholders’ equity	159,340			139,315
	$	387,691		$	413,100

See accompanying notes.

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FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(in thousands, except per share data)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Revenues:
Senior living revenue	$	270,024		$	251,795		$	801,585		$	752,024
Rehabilitation hospital revenue	24,756			24,641			73,917			75,008
Institutional pharmacy revenue	20,280			18,868			59,770			55,418
Total revenues	315,060			295,304			935,272			882,450

Operating expenses:
Senior living wages and benefits	135,810			128,851			402,364			382,957
Other senior living operating expenses	65,573			62,427			191,545			182,881
Rehabilitation hospital expenses	22,579			22,363			68,196			68,011
Institutional pharmacy expenses	19,717			18,296			58,223			54,957
Rent expense	47,628			44,468			142,162			132,929
General and administrative	13,751			13,465			40,975			38,914
Depreciation and amortization	4,248			3,993			12,495			12,415
Total operating expenses	309,306			293,863			915,960			873,064

Operating income	5,754			1,441			19,312			9,386

Interest, dividend and other income	322			479			1,623			2,394
Interest and other expense	(690		)	(964		)	(2,388		)	(3,390		)
Gain (loss) on investments in trading securities	—			(238		)	4,856			3,473
(Loss) gain on UBS put right related to auction rate securities	—			455			(4,714		)	(2,832		)
Equity in income (losses) of Affiliates Insurance Company	35			(23		)	(17		)	(132		)
Gain on early extinguishment of debt	66			3,031			484			34,262
Gain on sale of available for sale securities	—			795			—			795
Impairment of investments in available for sale securities	—			—			—			(2,947		)

Income from continuing operations before income taxes	5,487			4,976			19,156			41,009
Benefit (provision) for income taxes	123			(565		)	(930		)	(2,074		)
Income from continuing operations	5,610			4,411			18,226			38,935
Loss from discontinued operations	(452		)	(303		)	(830		)	(877		)

Net income	$	5,158		$	4,108		$	17,396		$	38,058

Weighted average shares outstanding - basic	35,724			34,219			35,698			32,890

Weighted average shares outstanding - diluted	38,937			38,835			39,302			38,554

Basic income per share from:
Continuing operations	$	0.16		$	0.13		$	0.51		$	1.18
Discontinued operations	(0.01		)	(0.01		)	(0.02		)	(0.03		)
Net income per share - basic	$	0.15		$	0.12		$	0.49		$	1.15

Diluted income per share from:
Continuing operations	$	0.15		$	0.13		$	0.50		$	1.06
Discontinued operations	(0.01		)	(0.01		)	(0.02		)	(0.02		)
Net income per share - diluted	$	0.14		$	0.12		$	0.48		$	1.04

See accompanying notes.

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FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

	Nine months ended September 30,
	2010			2009

Cash flows from operating activities:
Net income	$	17,396		$	38,058
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	12,495			12,415
Gain on early extinguishment of debt	(484		)	(34,262		)
Loss from discontinued operations	830			877
Gain on investments in trading securities	(4,856		)	(3,473		)
Loss on UBS put right related to auction rate securities	4,714			2,832
Gain on sale of available for sale securities	—			(795		)
Impairment of investments in available for sale securities	—			2,947
Equity in losses of Affiliates Insurance Company	17			132
Provision for losses on receivables, net	(6		)	371
Changes in assets and liabilities:
Accounts receivable	(1,068		)	3,720
Prepaid expenses and other assets	1,245			(1,171		)
Investment in trading securities	74,425			—
Accounts payable and accrued expenses	(11,192		)	(949		)
Accrued compensation and benefits	10,554			9,696
Due to affiliates	105			218
Other current and long term liabilities	5,822			2,229
Cash provided by operating activities	109,997			32,845

Net cash (used in) provided by discontinued operations	(830		)	275

Cash flows from investing activities:
Deposits into restricted cash and investment accounts, net	482			(5,744		)
Acquisition of property and equipment	(37,429		)	(47,666		)
Acquisition of senior living communities, net of working capital assumed	(13,232		)	—
Investment in Affiliates Insurance Company	(75		)	(5,109		)
Proceeds from disposition of property and equipment held for sale	23,768			30,353
Proceeds from sale of equipment to Senior Housing	—			8,491
Proceeds from sale of available for sale securities	514			3,719
Cash used in investing activities	(25,972		)	(15,956		)

Cash flows from financing activities:
Proceeds from borrowings on credit facilities	10,649			48,889
Repayments of borrowings on credit facilities	(49,790		)	(31,060		)
Purchase and retirement of convertible senior notes	(7,778		)	(38,458		)
Repayments of mortgage notes payable	(4,584		)	(121		)
Proceeds from issuance of common shares to Senior Housing	—			8,960
Cash used in financing activities	(51,503		)	(11,790		)

Change in cash and cash equivalents during the period	31,692			5,374
Cash and cash equivalents at beginning of period	5,017			16,138
Cash and cash equivalents at end of period	$	36,709		$	21,512

Supplemental cash flow information:
Cash paid for interest	$	1,527		$	2,516
Cash paid for income taxes	$	987		$	2,216

Non-cash activities:
Issuance of common stock	$	174		$	87

See accompanying notes.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 1. Basis of Presentation and Organization

The accompanying condensed consolidated financial statements of Five Star Quality Care, Inc. and its subsidiaries, which we refer to as the Company, we, us and our, have been prepared without audit. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2009, or our Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included. All material intercompany transactions and balances have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. For discussion of our liquidity and capital resources see Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this quarterly report. We have made reclassifications to the prior year’s financial statements to conform to the current year’s presentation. Material changes are limited to presenting accrued self insurance obligations separately from other current liabilities and presenting community fees separately from other long term liabilities. These reclassifications had no effect on net income or shareholders’ equity.

We operate senior living communities, including independent living communities, assisted living facilities and skilled nursing facilities, or SNFs. As of September 30, 2010, we leased or owned and operated 214 senior living communities containing 22,774 living units, including 171 primarily independent and assisted living communities with 18,722 living units and 43 SNFs with 4,052 living units.

Of our 171 primarily independent and assisted living communities, we:

· leased 143 communities containing 16,445 living units from Senior Housing Properties Trust, or SNH, our former parent;

· leased four communities with 200 living units from Health Care Property Investors, or HCPI; and

· owned 24 communities with 2,077 living units.

Of our 43 SNFs, we:

· leased 41 facilities with 3,781 living units from SNH; and

· owned two facilities with 271 living units.

In aggregate, our 214 senior living communities included 6,323 independent living apartments, 10,469 assisted living suites and 5,982 skilled nursing units. Excluded from the preceding data are two assisted living communities containing 173 living units leased from SNH that we have classified as discontinued operations.

We also operate two rehabilitation hospitals with 321 beds that we lease from SNH. Our two rehabilitation hospitals provide inpatient services at the two hospitals and three satellite locations. In addition, we operate 13 outpatient clinics affiliated with these rehabilitation hospitals. We also own and operate five institutional pharmacies.

Note 2. Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board, or FASB, issued an accounting standards update requiring additional disclosures regarding fair value measurements. The update requires reporting entities to disclose additional information regarding assets and liabilities that are transferred between levels within the fair value hierarchy. The update also clarifies the level of disaggregation at which fair value disclosures should be made and

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair values. The update is effective for interim and annual reporting periods beginning after December 15, 2009 except for the requirement to separately disclose purchases, sales, issuances and settlements in the Level 3 roll forward that becomes effective for fiscal periods beginning after December 15, 2010.

The adoption of this update did not, and is not expected to, cause any material changes to the disclosures in our condensed consolidated financial statements.

Note 3. Property and Equipment

Property and equipment, at cost, consists of the following:

	September 30, 2010			December 31, 2009
Land	$	15,534		$	14,774
Buildings and improvements	164,141			151,392
Furniture, fixtures and equipment	74,307			62,678
	253,982			228,844
Accumulated depreciation	(45,027		)	(36,102		)
	$	208,955		$	192,742

As of September 30, 2010 and December 31, 2009, we had assets of $5,009 and $6,944, respectively, included in our property and equipment that we intend to sell to SNH as permitted by our leases.

Note 4. Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2010 and 2009 is summarized below:

	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Net income	$	5,158	$	4,108	$	17,396	$	38,058
Net change in unrealized appreciation of investments	1,593		968		2,114		5,679
Comprehensive income	$	6,751	$	5,076	$	19,510	$	43,737

Note 5. Financial Data by Segment

Our reportable segments consist of our senior living community business and our rehabilitation hospital business. In the senior living community segment, we operate independent living communities, assisted living facilities and SNFs, which are subject to centralized oversight and provide housing and services generally to elderly residents. Our rehabilitation hospital segment provides inpatient rehabilitation services at two hospital locations and three satellite locations and outpatient rehabilitation services at 13 affiliated outpatient clinics. We do not consider our institutional pharmacy operations to be a material, separately reportable segment of our business, but we report our institutional pharmacy revenues and expenses as separate items within our corporate and other activities. All of our operations and assets are located in the United States, except for assets of our captive insurance company, which participates in our workers’ compensation and liability insurance programs and is located in the Cayman Islands.

We use segment operating profit as a means to evaluate our performance and for our business decision making purposes. Segment operating profit excludes interest and other income, interest and other expense, and certain corporate expenses.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Our revenues by segments and a reconciliation of segment operating profit (loss) to income from continuing operations for the three and nine months ended September 30, 2010 and 2009 are as follows:

	Senior Living Communities			Rehabilitation Hospitals			Corporate and Other (1)			Total
Three months ended September 30, 2010
Revenues	$	270,024		$	24,756		$	20,280		$	315,060
Segment expenses:
Operating expenses	201,383			22,579			19,717			243,679
Rent expense	45,087			2,541			—			47,628
Depreciation and amortization	3,357			35			856			4,248
Total segment expenses	249,827			25,155			20,573			295,555

Segment operating profit (loss)	20,197			(399		)	(293		)	19,505
General and administrative expenses (2)	—			—			(13,751		)	(13,751		)
Operating income (loss)	20,197			(399		)	(14,044		)	5,754
Interest, dividend and other income	22			—			300			322
Interest and other expense	(141		)	—			(549		)	(690		)
Equity in income of Affiliates Insurance Company	—			—			35			35
Gain on early extinguishment of debt	—			—			66			66
Benefit for income taxes	—			—			123			123
Income (loss) from continuing operations	$	20,078		$	(399	)	$	(14,069	)	$	5,610

Total Assets as of September 30, 2010	$	300,537		$	14,342		$	72,812		$	387,691

	Senior Living Communities			Rehabilitation Hospitals			Corporate and Other (1)			Total
Three months ended September 30, 2009
Revenues	$	251,795		$	24,641		$	18,868		$	295,304
Segment expenses:
Operating expenses	191,278			22,363			18,296			231,937
Rent expense	41,906			2,562			—			44,468
Depreciation and amortization	2,961			22			1,010			3,993
Total segment expenses	236,145			24,947			19,306			280,398

Segment operating profit (loss)	15,650			(306		)	(438		)	14,906
General and administrative expenses (2)	—			—			(13,465		)	(13,465		)
Operating profit (loss)	15,650			(306		)	(13,903		)	1,441
Interest, dividend and other income	9			—			470			479
Interest and other expense	(200		)	—			(764		)	(964		)
Loss on investments in trading securities	—			—			(238		)	(238		)
Gain on UBS put right related to auction rate securities	—			—			455			455
Equity in losses of Affiliates Insurance Company	—			—			(23		)	(23		)
Gain on early extinguishment of debt	—			—			3,031			3,031
Gain on sale of available for sale securities	—			—			795			795
Provision for income taxes	—			—			(565		)	(565		)
Income (loss) from continuing operations	$	15,459		$	(306	)	$	(10,742	)	$	4,411

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

	Senior Living Communities			Rehabilitation Hospitals			Corporate and Other (1)			Total
Nine months ended September 30, 2010
Revenues	$	801,585		$	73,917		$	59,770		$	935,272
Segment expenses:
Operating expenses	593,909			68,196			58,223			720,328
Rent expense	134,726			7,436			—			142,162
Depreciation and amortization	9,651			97			2,747			12,495
Total segment expenses	738,286			75,729			60,970			874,985

Segment operating profit (loss)	63,299			(1,812		)	(1,200		)	60,287
General and administrative expenses (2)	—			—			(40,975		)	(40,975		)
Operating income (loss)	63,299			(1,812		)	(42,175		)	19,312
Interest, dividend and other income	176			—			1,447			1,623
Interest and other expense	(537		)	—			(1,851		)	(2,388		)
Gain on investments in trading securities	—			—			4,856			4,856
Loss on UBS put right related to auction rate securities	—			—			(4,714		)	(4,714		)
Equity in losses of Affiliates Insurance Company	—			—			(17		)	(17		)
Gain (loss) on early extinguishment of debt	(134		)	—			618			484
Provision for income taxes	—			—			(930		)	(930		)
Income (loss) from continuing operations	$	62,804		$	(1,812	)	$	(42,766	)	$	18,226

	Senior Living Communities			Rehabilitation Hospitals			Corporate and Other (1)			Total
Nine months ended September 30, 2009
Revenues	$	752,024		$	75,008		$	55,418		$	882,450
Segment expenses:
Operating expenses	565,838			68,011			54,957			688,806
Rent expense	124,743			8,186			—			132,929
Depreciation and amortization	9,358			75			2,982			12,415
Total segment expenses	699,939			76,272			57,939			834,150

Segment operating profit (loss)	52,085			(1,264		)	(2,521		)	48,300
General and administrative expenses (2)	—			—			(38,914		)	(38,914		)
Operating profit (loss)	52,085			(1,264		)	(41,435		)	9,386
Interest, dividend and other income	302			—			2,092			2,394
Interest and other expense	(603		)	—			(2,787		)	(3,390		)
Gain on investments in trading securities	—			—			3,473			3,473
Loss on UBS put right related to auction rate securities	—			—			(2,832		)	(2,832		)
Equity in losses of Affiliates Insurance Company	—			—			(132		)	(132		)
Gain on early extinguishment of debt	—			—			34,262			34,262
Gain on sale of available for sale securities	—			—			795			795
Impairment on investments in available for sale securities	—			—			(2,947		)	(2,947		)
Provision for income taxes	—			—			(2,074		)	(2,074		)
Income (loss) from continuing operations	$	51,784		$	(1,264	)	$	(11,585	)	$	38,935

(1)	Corporate and Other includes operations that we do not consider significant, separately reportable segments of our business, as well as income and expenses that are not attributable to a specific segment.

(2)	General and administrative expenses are not attributable to a specific segment and include items such as corporate payroll and benefits and contractual service expenses affecting home office activities.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 6. Goodwill, and Other Intangible Assets

The changes in the carrying amount of goodwill and other intangible assets from January 1, 2010 to September 30, 2010 are as follows:

	Senior Living Communities (1)			Corporate and Other (2)			Total
Balance as of January 1, 2010	$	11,793		$	4,389		$	16,182

Amortization of intangibles	(76		)	(271		)	(347		)

Balance as of September 30, 2010	$	11,717		$	4,118		$	15,835

(1)	Goodwill and other intangible assets in our Senior Living Communities segment relate to management agreements and trademarks we acquired in connection with one of the leases we initiated with SNH in 2009 and goodwill we recorded in connection with our senior living community acquisitions in previous years.

(2)	Intangible assets in our Corporate and Other segment relate to customer agreements we acquired in connection with our pharmacy acquisitions.

Note 7. Income Taxes

Because we have historically reported losses, we do not currently recognize the benefit of all of our deferred tax assets, including tax loss carry forwards that may be used to offset future taxable income. We will, however, continue to assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized. When we believe that we will more likely than not realize the benefit of our deferred tax assets, we will record deferred tax assets as an income tax benefit in our consolidated statement of operations, which will affect our results of operations. As of December 31, 2009, our federal net operating loss carry forward was approximately $121,385. Our net operating loss carry forwards, which begin to expire in 2024 if unused, are subject to audit and adjustment by the Internal Revenue Service.

For the nine months ended September 30, 2010, we recognized tax expenses of $930, which includes a tax benefit of $308 related to prior year refunds resulting from the application of tax credits that offset federal alternative minimum taxes, and $1,116 of state taxes that are payable without regard to our tax loss carry forwards. Tax expense also includes $122 related to a non-cash deferred liability arising from the amortization of goodwill for tax purposes but not for book purposes.

Note 8. Earnings Per Share

We computed basic earnings per share, or EPS, for the three and nine months ended September 30, 2010 and 2009 using the weighted average number of shares outstanding during the periods. Diluted EPS for the periods ended September 30, 2010 and 2009, reflects additional common shares, related to our convertible senior notes due in 2026, or the Notes, that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income applicable to common shareholders that would result from their assumed issuance. The weighted average shares outstanding used to calculate basic and diluted EPS include 435,490 and 389,240 unvested shares as of September 30, 2010 and 2009, respectively, issued to our officers and others under our 2001 Stock Option and Stock Incentive Plan.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

The following table provides a reconciliation of income from continuing operations and loss from discontinued operations and the number of common shares used in the computations of diluted EPS:

	Three Months Ended September 30,
	2010							2009
	Income (loss)			Shares	Per Share			Income (loss)			Shares	Per Share
Income from continuing operations	$	5,610		35,724	$	0.16		$	4,411		34,219	$	0.13
Effect of convertible senior notes	380			3,213				488			4,616
Diluted income from continuing operations	$	5,990		38,937	$	0.15		$	4,899		38,835	$	0.13

Diluted loss from discontinued operations	$	(452	)	38,937	$	(0.01	)	$	(303	)	38,835	$	(0.01	)

	Nine Months Ended September 30,
	2010							2009
	Income (loss)			Shares	Per Share			Income (loss)			Shares	Per Share
Income from continuing operations	$	18,226		35,698	$	0.51		$	38,935		32,890	$	1.18
Effect of convertible senior notes	1,266			3,604				1,783			5,664
Diluted income from continuing operations	$	19,492		39,302	$	0.50		$	40,718		38,554	$	1.06

Diluted loss from discontinued operations	$	(830	)	39,302	$	(0.02	)	$	(877	)	38,554	$	(0.02	)

Note 9. Fair Values of Assets and Liabilities

The table below presents the assets and liabilities that we measured at fair value at September 30, 2010, categorized by the level of inputs used in the valuation of each asset.

Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Long lived assets held for sale (1)	$	5,009	$	—	$	5,009	$	—
Available for sale securities (2)
Equity securities
Financial services industry	9,989		9,989		—		—
REIT industry	2,712		2,712		—		—
Insurance industry	2,233		2,233		—		—
Other	1,677		1,677		—		—
Total equity securities	16,611		16,611		—		—
Debt securities
International convertible bond fund	203		203		—		—
International bond fund	1,966		1,966		—		—
Total debt securities	2,169		2,169		—		—
Total available for sale securities	18,780		18,780		—		—

Total	$	23,789	$	18,780	$	5,009	$	—

(1) Long lived assets held for sale consist of property and equipment we expect to sell to SNH as permitted by our leases. We expect to sell these assets to SNH at their recorded cost and we have either recently acquired the assets or the assets are part of active construction projects. Accordingly, the cost of these assets approximates their fair value.

(2) Investments in available for sale securities are reported on our balance sheet as current investments in available for sale securities of $12,323 and long term restricted cash and investments of $6,457. We determine the estimated fair value of our available for sale securities by reviewing each security’s current market price, the ratings of the security, the financial

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

condition of the issuer and our intent and ability to retain the investment during temporary market price fluctuations or until maturity. In evaluating the factors described above, we presume a decline in value to be an “other than temporary impairment” if the quoted market price of the security is below the security’s cost basis for an extended period. However, this presumption may be overcome if there is persuasive evidence indicating the value decline is temporary in nature, such as when the operating performance of the obligor is strong or if the market price of the security is historically volatile. When we believe that a change in fair value of an available for sale security is temporary, we record a corresponding credit or charge to other comprehensive income for any unrealized gains or losses. When we determine that an impairment in the fair value of an available for sale security is an “other than temporary impairment”, we record a charge to earnings. During the nine months ended September 30, 2009, we recorded an “other than temporary impairment” charge of $2,947, for certain of these securities.

Our investments in available for sale securities had amortized costs of $12,004 and $12,518 as of September 30, 2010 and December 31, 2009, respectively, had unrealized gains of $6,776 and $4,701 as of September 30, 2010 and December 31, 2009, respectively, and had unrealized losses of $39 as of December 31, 2009. During the three months ended September 30, 2009, we received gross proceeds of $3,719 in connection with the sale of available for sale securities and recorded a gross realized gain totaling $820 and a gross realized loss totaling $25.

During the three and nine months ended September 30, 2010, there were no transfers of assets or liabilities for which we began or discontinued to use Significant Unobservable Inputs (Level 3) to measure their value.

Our financial instruments are limited to cash and cash equivalents, accounts receivable, investments in available for sale securities, accounts payable, mortgage notes payable and our Notes. As of September 30, 2010 we believe that the fair values of our current financial instruments as of September 30, 2010 approximate their reported carrying amounts.

The carrying values and fair values of non-current financial instruments are shown in the following table.

	As of September 30, 2010				As of December 31, 2009
Description	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long term financial assets:
Restricted cash and investments (1)	$	17,005	$	17,005	$	14,670	$	14,670
Equity investment in Affiliates Insurance Company (2)	5,058		5,058		5,000		5,000
Total long term financial assets	$	22,063	$	22,063	$	19,670	$	19,670

Long term financial liabilities:
Mortgage notes payable (1)	7,724		7,724		12,284		12,284
Convertible senior notes (3)	41,065		35,316		49,707		37,777
Total long term financial liabilities	$	48,789	$	43,040	$	61,991	$	50,061

(1) The carrying value of our restricted cash and investments and our mortgage notes payable approximate fair value.

(2) We measured the fair value of our equity investment in Affiliates Insurance Company, or Affiliates Insurance, by considering, among other things, the individual assets and liabilities held by Affiliates Insurance, Affiliates Insurance’s overall financial condition and earning trends, and the financial condition and prospects for the insurance industry generally.

(3) We estimate the fair value of the Notes, using quoted market data for these securities.

Note 10. Acquisition s

In August 2010, we acquired from an unrelated party, a continuing care retirement community containing 110 living units located in Wisconsin for $14,700. We financed the acquisition with cash on hand and by the assumption of

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

approximately $1,311 of resident deposits. We have included the results of this community’s operations in our consolidated financial statements from the date of acquisition. We allocated the purchase price of this community to land, buildings and equipment. The majority of this community’s revenues come from residents’ private resources. We acquired this community as part of our strategy of expanding our business in high quality senior living operations where residents pay for our services with private resources.

Note 11. Indebtedness

We have a $35,000 revolving line of credit and security agreement, or our Credit Agreement, which terminates on March 18, 2013 when all amounts outstanding are due. Borrowings under our Credit Agreement are available for acquisitions, working capital and general business purposes. Funds available under our Credit Agreement may be drawn, repaid and redrawn until maturity and no principal payment is due until maturity. We borrow in U.S. dollars and borrowings under our Credit Agreement bear interest at LIBOR (with a floor of 2% per annum) plus 400 basis points. We are the borrower under our Credit Agreement and certain of our subsidiaries guarantee our obligations under our Credit Agreement, which is secured by our and our guarantor subsidiaries’ accounts receivable and related collateral. Our Credit Agreement contains covenants requiring us to maintain certain financial ratios, places limits on our ability to incur or assume debt or create liens with respect to certain of our properties and has other customary provisions. Our Credit Agreement also provides for acceleration of payment of all amounts payable under our Credit Agreement upon the occurrence and continuation of certain events of default. As of September 30, 2010 and October 28, 2010, no amounts were outstanding under our Credit Agreement. As of September 30, 2010 and October 28, 2010, we believe we are in compliance with all applicable covenants under our Credit Agreement. Interest expense and other associated costs related to our Credit Agreement and our prior revolving line of credit were $137 and $56 for the three months ended September 30, 2010 and 2009, respectively, and $355 and $248 for the nine months ended September 30, 2010 and 2009, respectively.

On July 1, 2010 we repaid our outstanding balance of $6,264 and terminated our non-recourse credit facility with UBS AG, or UBS. Interest expense and other associated costs related to this facility were $0 and $111 for the three months ended September 30, 2010 and 2009, respectively, and $149 and $398 for the nine months ended September 30, 2010 and 2009, respectively.

At September 30, 2010, we had $41,065 principal amount of the Notes outstanding, that we issued pursuant to an indenture in October 2006. The Notes bear interest at a rate of 3.75% per annum, payable semi-annually in arrears on April 15 and October 15 of each year and are convertible into our common shares at any time. The initial and current conversion rate, which is subject to adjustment, is 76.9231 common shares per $1 principal amount of the Notes, which represents a conversion price of $13.00 per share. The Notes are guaranteed by certain of our wholly owned subsidiaries. The Notes mature on October 15, 2026. We may prepay the Notes at any time after October 20, 2011 and the Note holders may require that we purchase some or all of the Notes on October 15 of each of 2013, 2016 and 2021. If a “fundamental change”, as defined in the indenture governing the Notes, occurs, holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest and, in certain circumstances, plus a make whole premium as defined in the indenture governing the Notes. Interest expense and other associated costs on the outstanding Notes were $412 and $597 for the three months ended September 30, 2010 and 2009, respectively, and $1,346 and $2,143 for the nine months ended September 30, 2010 and 2009, respectively. As of September 30, 2010 and October 28, 2010, we believe we are in compliance with all applicable covenants of this indenture.

During the nine months ended September 30, 2010, we purchased and retired $8,642 par value of the Notes that we purchased for $7,778, plus accrued interest. During the nine months ended September 30, 2009, we purchased and retired $74,920 par value of the Notes for $38,458, plus accrued interest. As a result of these purchases we recorded a gain on extinguishment of debt during the nine months ended September 30, 2010 and 2009 of $618 and $34,262, respectively, net of transaction costs and related unamortized financing costs. The 2010 gain was partially offset in our condensed consolidated statement of income by a $134 prepayment penalty related to the prepayment of one of our United States Department of Housing and Urban Development, or HUD, insured mortgages.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

At September 30, 2010, two of our communities were encumbered by HUD insured mortgage notes totaling $7,857, that contain standard HUD mortgage covenants. The weighted average interest rate on these HUD loans is 5.43%. Payments of principal and interest are due monthly until the mortgage notes mature; one note matures in June 2035 and the other matures in May 2039. In July 2010, we prepaid another of our HUD insured mortgages that was secured by one of our senior living communities. We paid $4,635 to retire this note which consisted of $4,501 in principal and interest and $134 in prepayment penalties. Mortgage interest expense, including premium amortization, was $141 and $200 for the three months ended September 30, 2010 and 2009, respectively, and $538 and $603 for the nine months ended September 30, 2010 and 2009.

Note 12. Off Balance Sheet Arrangements

As of September 30, 2010, we had no off balance sheet arrangements, commercial paper, derivatives, swaps, hedges, third party guarantees, material joint ventures or partnerships, except for the pledge of certain of our assets, such as accounts receivable, with a carrying value of $14,904 arising from our operation of 56 properties owned by SNH and leased to us to secure SNH’s borrowings from its lender.

Note 13. Related Person Transactions

SNH is our former parent company, SNH is our most important landlord and SNH is currently our largest shareholder (owning approximately 9.1% of our total common shares outstanding as of September 30, 2010). Also, both we and SNH purchase management services from Reit Management and Research LLC, or RMR. As of September 30, 2010, we leased 186 of our 216 senior living communities, including two that we report as discontinued operations, and two rehabilitation hospitals from SNH. Under our leases with SNH, we pay SNH rent based on minimum annual amounts plus percentage amounts based on increases in gross revenues at certain properties. During the nine months ended September 30, 2010 and 2009 we recorded rent expense of $141,214 and $132,266, respectively, under our leases with SNH. During the three and nine months ended September 30, 2010, pursuant to the terms of our leases with SNH, SNH purchased $7,958 and $23,768 of improvements made to our properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $638 and $1,905, respectively. In August 2010, at our request, SNH sold four skilled nursing facilities located in Nebraska with aggregate 196 living units that we leased from SNH and our rent to SNH decreased by approximately $145 per year. Our total annual rent payable to SNH under our leases with SNH as of September 30, 2010 was $186,137, excluding percentage rent based on increases in gross revenues at certain properties.

During the three months ended September 30, 2010 and 2009, we incurred management service charges due to RMR of $2,880 and $2,707, respectively; during the nine month periods ended September 30, 2010 and 2009, we incurred management service charges due to RMR of $8,424 and $7,859, respectively.

As of September 30, 2010, we have invested $5,209 in Affiliates Insurance, an Indiana licensed insurance company organized by RMR and other companies to which RMR provides management services. All of our directors are also directors of Affiliates Insurance and RMR provides certain management services to Affiliates Insurance. We own 14.29% of Affiliates Insurance. Although we own less than 20% of Affiliates Insurance, we use the equity method to account for this investment because we believe that we have significant influence over Affiliates Insurance because each of our directors is a director of Affiliates Insurance. This investment had a carrying value of $5,058 and $5,000 as of September 30, 2010 and December 31, 2009, respectively. During the three and nine months ended September 30, 2010, we invested an additional $31 and $75, respectively, in Affiliates Insurance. During the three and nine months ended September 30, 2010, we recognized income of $35 and a loss of $17, respectively, related to this investment. In June 2010, we, RMR and other companies to which RMR provides management services purchased property insurance pursuant to an insurance program arranged by Affiliates Insurance. Our annual premiums and associated costs for this property insurance are expected to be approximately $2,878. We are currently investigating the possibilities to expand our insurance relationships with Affiliates Insurance.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

For more information about our related person transactions, including our dealings with SNH, RMR, Affiliates Insurance, our Managing Directors and their affiliates and about the risks which may arise as a result of these and other related person transactions, please see our Annual Report and our other filings made with the Securities and Exchange Commission, or the SEC, and, in particular, the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” in our Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement dated February 22, 2010 relating to our 2010 Annual Meeting of Shareholders and in Item 1.01 in our Current Report on Form 8-K filed with the SEC on January 8, 2010.

Note 14. Discontinued Operations

In March 2007, we agreed with SNH that it should sell two assisted living communities located in Pennsylvania with aggregate 173 living units, which we lease from SNH. We and SNH are in the process of selling these assisted living communities and, if they are sold, our annual minimum rent payable to SNH will decrease by 9.0% of the net proceeds of the sale to SNH, in accordance with the terms of our lease with SNH.

We have reclassified the consolidated statement of income for all periods presented to show the results of operations of the communities and pharmacies which have been sold or are expected to be sold as discontinued. Below is a summary of the operating results of these discontinued operations included in the financial statements for the three and nine months ended September 30, 2010 and 2009:

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Revenues	$	1,078		$	3,875		$	6,124		$	12,297
Expenses	(1,530		)	(4,178		)	(6,954		)	(13,174		)
Net loss	$	(452	)	$	(303	)	$	(830	)	$	(877	)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Our reportable segments consist of our senior living community business and our rehabilitation hospital business. In the senior living community segment, we operate independent living communities, assisted living facilities and SNFs. Our rehabilitation hospital segment provides inpatient rehabilitation services at two hospital locations and three satellite locations and outpatient rehabilitation services at 13 outpatient clinics. We do not consider our institutional pharmacy operations to be a material, separately reportable segment of our business, but we report our institutional pharmacy revenues and expense as separate items within our corporate and other activities. All of our operations and assets are located in the United States, except for our captive insurance company, which participates in our workers’ compensation and liability insurance programs and is located in the Cayman Islands.

We use segment operating profit as an important measure to evaluate our performance and for business decision making purposes. Segment operating profit excludes interest, dividend and other income, interest and other expense and certain corporate expenses.

Key Statistical Data For the Three Months Ended September 30, 2010 and 2009:

The following tables present a summary of our operations for the three months ended September 30, 2010 and 2009:

Senior living communities:

	Three months ended September 30,
(dollars in thousands, except average daily rate)	2010			2009			$ Change			% Change
Senior living revenue	$	270,024		$	251,795		$	18,229		7.2	%
Senior living wages and benefits	(135,810		)	(128,851		)	(6,959		)	(5.4	)%
Other senior living operating expenses	(65,573		)	(62,427		)	(3,146		)	(5.0	)%
Rent expense	(45,087		)	(41,906		)	(3,181		)	(7.6	)%
Depreciation and amortization expense	(3,357		)	(2,961		)	(396		)	(13.4	)%
Interest and other expense	(141		)	(200		)	59			29.5	%
Interest, dividend and other income	22			9			13			144.4	%
Senior living income from continuing operations	$	20,078		$	15,459		$	4,619		29.9	%

No. of communities (end of period)	214			202			12			5.9	%
No. of living units (end of period)	22,774			21,722			1,052			4.8	%
Occupancy %	86.2		%	86.4		%	n/a			(0.2	)%
Average daily rate	$	148.40		$	144.54		$	3.86		2.7	%
Percent of senior living revenue from Medicaid	16.1		%	16.2		%	n/a			(0.1	)%
Percent of senior living revenue from Medicare	13.8		%	14.1		%	n/a			(0.3	)%
Percent of senior living revenue from private and other sources	70.1		%	69.7		%	n/a			0.4	%

Comparable communities (senior living communities that we have operated continuously since July 1, 2009):

	Three months ended September 30,
(dollars in thousands, except average daily rate)	2010			2009			$ Change			% Change
Senior living revenue	$	258,439		$	251,795		$	6,644		2.6	%
Senior living wages and benefits	(129,994		)	(128,851		)	(1,143		)	(0.9	)%
Other senior living operating expenses	(62,912		)	(62,427		)	(485		)	(0.8	)%
No. of communities (end of period)	202			202			n/a			—
No. of living units (end of period)	21,722			21,722			n/a			—
Occupancy %	86.1		%	86.4		%	n/a			(0.3	)%
Average daily rate	$	148.80		$	144.54		$	4.26		2.9	%
Percent of senior living revenue from Medicaid	16.4		%	16.2		%	n/a			0.2	%
Percent of senior living revenue from Medicare	14.2		%	14.1		%	n/a			0.1	%
Percent of senior living revenue from private and other sources	69.4		%	69.7		%	n/a			(0.3	)%

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Rehabilitation hospitals:

	Three months ended September 30,
(dollars in thousands)	2010			2009			$ Change			% Change
Rehabilitation hospital revenues	$	24,756		$	24,641		$	115		0.5	%
Rehabilitation hospital expenses	(22,579		)	(22,363		)	(216		)	(1.0	)%
Rent expense	(2,541		)	(2,562		)	21			0.8	%
Depreciation and amortization expense	(35		)	(22		)	(13		)	(59.1	)%
Rehabilitation hospital (loss) income from continuing operations	$	(399	)	$	(306	)	$	(93	)	(30.4	)%

Corporate and Other: (1)

	Three months ended September 30,
(dollars in thousands)	2010			2009			$ Change			% Change
Institutional pharmacy revenue	$	20,280		$	18,868		$	1,412		7.5	%
Institutional pharmacy expenses	(19,717		)	(18,296		)	(1,421		)	(7.8	)%
Depreciation and amortization expense	(856		)	(1,010		)	154			15.2	%
General and administrative expense (2)	(13,751		)	(13,465		)	(286		)	(2.1	)%
Loss on investments in trading securities	—			(238		)	238			(100.0	)%
Gain on UBS put right related to auction rate securities	—			455			(455		)	(100.0	)%
Equity in income (losses) of Affiliates Insurance	35			(23		)	58			252.2	%
Gain on early extinguishment of debt	66			3,031			(2,965		)	(97.8	)%
Gain on sale of available for sale securities	—			795			(795		)	(100.0	)%
Interest, dividend and other income	300			470			(170		)	(36.2	)%
Interest and other expense	(549		)	(764		)	215			28.1	%
Benefit (provision) for income taxes	123			(565		)	688			121.8	%
Corporate and Other loss from continuing operations	$	(14,069	)	$	(10,742	)	$	(3,327	)	(31.0	)%

(1)		Corporate and Other includes operations that we do not consider a significant, separately reportable segment of our business and income and expenses that are not attributable to a specific segment.
(2)		General and administrative expenses are not attributable to a specific segment and include items such as corporate payroll and benefits and contractual service expenses affecting home office activities.

Consolidated:

	Three months ended September 30,
(dollars in thousands)	2010			2009			$ Change			% Change
Summary of revenue:
Senior living revenue	$	270,024		$	251,795		$	18,229		7.2	%
Rehabilitation hospital revenue	24,756			24,641			115			0.5	%
Corporate and other	20,280			18,868			1,412			7.5	%
Total revenue	$	315,060		$	295,304		$	19,756		6.7	%

Summary of income from continuing operations:
Senior living communities	$	20,078		$	15,459		$	4,619		29.9	%
Rehabilitation hospitals	(399		)	(306		)	(93		)	(30.4	)%
Corporate and other	(14,069		)	(10,742		)	(3,327		)	(31.0	)%
Income from continuing operations	$	5,610		$	4,411		$	1,199		27.2	%

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Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

Senior living communities:

The 7.2% increase in senior living revenue for the three months ended September 30, 2010 compared to the comparable period in 2009 was due primarily to revenues from the 11 communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010, plus increased per diem charges to residents, offset by a decrease in occupancy. The 2.6% increase in senior living revenue at the communities that we have operated continuously since April 1, 2009, or our comparable communities, was due primarily to increased per diem charges to residents, offset by a decrease in occupancy.

Our 5.4% increase in senior living wages and benefits for the three months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to wages and benefits from the 11 communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010 plus slightly higher than historical workers compensation costs at our comparable communities offset by a reduction in our health insurance costs. The 5.0% increase in other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, primarily resulted from expenses at the 11 communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010. The senior living wages and benefits costs for our comparable communities increased by 0.9% due primarily to moderate wage increases and slightly higher than historical workers compensation costs offset by a reduction in our health insurance costs. Other senior living operating expenses at our comparable communities increased by 0.8% due primarily to increases in food and other general and administrative costs. The 7.6% senior living rent expense increase was primarily due to the addition of 11 communities that we began to lease during the fourth quarter of 2009 and our payment of additional rent for senior living community capital improvements purchased by SNH since July 1, 2009.

The 13.4% increase in senior living depreciation and amortization expense for the three months ended September 30, 2010 compared to the comparable period in 2009 was primarily attributable to capital expenditures (net of sales of capital improvements to SNH), including depreciation costs arising from our purchase of furniture and fixtures for our owned communities.

Our interest and other expenses decreased by 29.5% for the three months ended September 30, 2010 compared to the comparable period in 2009 primarily as a result of the prepayment of one of our HUD insured mortgages.

Rehabilitation hospitals:

The 0.5% increase in rehabilitation hospital revenues for the three months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to increased third party insurance provider rates offset by a decrease in occupancy.

The 1.0% increase in rehabilitation hospital expenses for the three months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to higher operating and plant expenses and slightly higher than historical workers compensation costs offset by a reduction in our health insurance costs.

The 0.8% decrease in rent expense for the three months ended September 30, 2010 compared to the comparable period in 2009 was due to rent reductions pursuant to a lease realignment agreement we entered with SNH in August 2009, offset by our payment of additional rent for rehabilitation hospital capital improvements purchased by SNH after July 1, 2009.

Corporate and other:

The 7.5% increase in institutional pharmacy revenues for the three months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to adding new customers, partially offset by decreased revenues per prescription due to a higher percentage of sales of generic drugs.

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The 7.8% increase in institutional pharmacy expenses for the three months ended September 30, 2010 compared to the comparable period in 2009 was primarily the result of increases in cost of sales, due to higher pharmacy sales and the resulting increase in labor and benefit expenses associated with serving additional customers.

The 2.1% increase in general and administrative expenses for the three months ended September 30, 2010 compared to the comparable period in 2009 was primarily the result of increased regional support costs and expenses associated with communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010, plus wage increases. General and administrative expenses as a percentage of total revenue was 4.4% for the three months ended September 30, 2010 compared to 4.6% for the same period last year.

Our interest, dividend and other income decreased by 36.2% for the three months ended September 30, 2010 compared to the comparable period in 2009 primarily as a result of lower yields realized on our investments.

Our interest and other expense decreased by 28.1% for the three months ended September 30, 2010 compared to the comparable period in 2009 primarily as a result of our purchase and retirement of $38.9 million of our outstanding Notes since April 1, 2009.

During the three months ended September 30, 2010, we purchased and retired $925,000 par value of our outstanding Notes for $833,000, plus accrued interest. As a result of this purchase we recorded a gain on extinguishment of debt of $66,000, net of related unamortized costs.

During the three months ended September 30, 2009, we purchased and retired $15.6 million par value of our outstanding Notes for $12.2 million, plus accrued interest. As a result of these purchases we recorded a gain on extinguishment of debt of $3.0 million, net of related unamortized costs.

For the three months ended September 30, 2010, we recognized an income tax benefit of $123,000, which includes a tax benefit of $308,000 related to prior year refunds resulting from the application of tax credits that offset federal alternative minimum taxes, and $154,000 of state taxes that are payable without regard to our tax loss carry forwards. Tax benefit also includes $31,000 related to a non-cash deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes.

Key Statistical Data For the Nine Months Ended September 30, 2010 and 2009:

The following tables present a summary of our operations for the nine months ended September 30, 2010 and 2009:

Senior living communities:

	Nine months ended September 30,
(dollars in thousands, except average daily rate)	2010			2009			$ Change			% Change
Senior living revenue	$	801,585		$	752,024		$	49,561		6.6	%
Senior living wages and benefits	(402,364		)	(382,957		)	(19,407		)	(5.1	)%
Other senior living operating expenses	(191,545		)	(182,881		)	(8,664		)	(4.7	)%
Rent expense	(134,726		)	(124,743		)	(9,983		)	(8.0	)%
Depreciation and amortization expense	(9,651		)	(9,358		)	(293		)	(3.1	)%
Interest and other expense	(537		)	(603		)	66			10.9	%
Interest, dividend and other income	176			302			(126		)	(41.7	)%
Loss on early extinguishment of debt	(134		)	—			(134		)	—
Senior living income from continuing operations	$	62,804		$	51,784		$	11,020		21.3	%

No. of communities (end of period)	214			202			12			5.9	%
No. of living units (end of period)	22,774			21,734			1,040			4.8	%
Occupancy %	86.3		%	86.6		%	n/a			(0.3	)%
Average daily rate	$	148.71		$	145.24		$	3.47		2.4	%
Percent of senior living revenue from Medicaid	15.7		%	16.0		%	n/a			(0.3	)%
Percent of senior living revenue from Medicare	14.1		%	14.5		%	n/a			(0.4	)%
Percent of senior living revenue from private and other sources	70.2		%	69.5		%	n/a			0.7	%

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Comparable communities (senior living communities that we have operated continuously since January 1, 2009):

	Nine months ended September 30,
(dollars in thousands, except average daily rate)	2010			2009			$ Change			% Change
Senior living revenue	$	767,976		$	752,024		$	15,952		2.1	%
Senior living wages and benefits	(385,536		)	(382,957		)	(2,579		)	(0.7	)%
Other senior living operating expenses	(184,024		)	(182,881		)	(1,143		)	(0.6	)%
No. of communities (end of period)	202			202			n/a			—
No. of living units (end of period)	21,722			21,722			n/a			—
Occupancy %	86.1		%	86.6		%	n/a			(0.5	)%
Average daily rate	$	148.96		$	145.24		$	3.72		2.6	%
Percent of senior living revenue from Medicaid	16.0		%	16.0		%	n/a			—
Percent of senior living revenue from Medicare	14.5		%	14.5		%	n/a			—
Percent of senior living revenue from private and other sources	69.5		%	69.5		%	n/a			—

Rehabilitation hospitals:

	Nine months ended September 30,
(dollars in thousands)	2010			2009			$ Change			% Change
Rehabilitation hospital revenues	$	73,917		$	75,008		$	(1,091	)	(1.5	)%
Rehabilitation hospital expenses	(68,196		)	(68,011		)	(185		)	(0.3	)%
Rent expense	(7,436		)	(8,186		)	750			9.2	%
Depreciation and amortization expense	(97		)	(75		)	(22		)	(29.3	)%
Rehabilitation hospital loss from continuing operations	$	(1,812	)	$	(1,264	)	$	(548	)	(43.4	)%

Corporate and other: (1)

	Nine months ended September 30,
(dollars in thousands)	2010			2009			$ Change			% Change
Institutional pharmacy revenue	$	59,770		$	55,418		$	4,352		7.9	%
Institutional pharmacy expenses	(58,223		)	(54,957		)	(3,266		)	(5.9	)%
Depreciation and amortization expense	(2,747		)	(2,982		)	235			7.9	%
General and administrative (2)	(40,975		)	(38,914		)	(2,061		)	(5.3	)%
Gain on investments in trading securities	4,856			3,473			1,383			39.8	%
Loss on UBS put right related to auction rate securities	(4,714		)	(2,832		)	(1,882		)	(66.5	)%
Equity in losses of Affiliates Insurance	(17		)	(132		)	115			87.1	%
Gain on early extinguishment of debt	618			34,262			(33,644		)	(98.2	)%
Gain on sale of available for sale securities	—			795			(795		)	(100.0	)%
Impairment on investments in available for sale securities	—			(2,947		)	2,947			100.0	%
Interest, dividend and other income	1,447			2,092			(645		)	(30.8	)%
Interest and other expense	(1,851		)	(2,787		)	936			33.6	%
Provision for income taxes	(930		)	(2,074		)	1,144			55.2	%
Corporate and Other loss from continuing operations	$	(42,766	)	$	(11,585	)	$	(31,181	)	(269.1	)%

(1)		Corporate and Other includes operations that we do not consider significant, separately reportable segments of our business, and income and expenses that are not attributable to a specific segment.
(2)		General and administrative expenses are not attributable to a specific segment and include items such as corporate payroll and benefits and contractual service expenses affecting home office activities.

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Consolidated:

	Nine months ended September 30,
(dollars in thousands)	2010			2009			$ Change			% Change
Summary of revenue:
Senior living revenue	$	801,585		$	752,024		$	49,561		6.6	%
Rehabilitation hospital revenue	73,917			75,008			(1,091		)	(1.5	)%
Corporate and Other	59,770			55,418			4,352			7.9	%
Total revenue	$	935,272		$	882,450		$	52,822		6.0	%

Summary of income from continuing operations:
Senior living communities	$	62,804		$	51,784		$	11,020		21.3	%
Rehabilitation hospitals	(1,812		)	(1,264		)	(548		)	(43.4	)%
Corporate and Other	(42,766		)	(11,585		)	(31,181		)	(269.1	)%
Income from continuing operations	$	18,226		$	38,935		$	(20,709	)	(53.2	)%

Nine Months Ended September 30, 2010 Compared To Nine Months Ended September 30, 2009

Senior living communities:

The 6.6% increase in senior living revenue for the nine months ended September 30, 2010 compared to the comparable period in 2009 was due primarily to revenues from the 11 communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010 plus increased per diem charges to residents, offset by a decrease in occupancy. The 2.1% increase in senior living revenue at the communities that we have operated continuously since January 1, 2009, or our comparable communities, was due primarily to increased per diem charges, offset by a decrease in occupancy.

Our 5.1% increase in senior living wages and benefits for the nine months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to wages and benefits at the 11 communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010 plus slightly higher than historical workers compensation at our comparable communities, offset by a reduction in our health insurance costs. The 4.7% increase in other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, primarily resulted from expenses at the 11 communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010 plus increased charges from various service providers. The senior living wages and benefits at our comparable communities increased by 0.7% due primarily to moderate wage increases and slightly higher than historical workers compensation costs offset by a reduction in our health insurance costs. Other senior living operating costs at our comparable communities increased by 0.6% due primarily to increases in food and other general and administrative costs, offset by decreases in supplies and other purchased service expenses. The 8.0% senior living rent expense increase was primarily due to the addition of 11 communities that we began to lease during the fourth quarter of 2009 and our payment of additional rent for senior living community capital improvements purchased by SNH since January 1, 2009.

The 3.1% increase in senior living depreciation and amortization expense for the nine months ended September 30, 2010 compared to the comparable period in 2009 was primarily attributable to capital expenditures (net of sales of capital improvements to SNH), including depreciation costs arising from our purchase of furniture and fixtures for our owned communities.

Our senior living interest, dividend and other income decreased by $126,000 for the nine months ended September 30, 2010 compared to the comparable period in 2009, primarily as a result of lower yields on our investments.

Our interest and other expenses decreased by 10.9% for the nine months ended September 30, 2010 compared to the comparable period in 2009 primarily as a result of the prepayment of one of our HUD insured mortgages.

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Rehabilitation hospitals:

The 1.5% decrease in rehabilitation hospital revenues for the nine months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to a decrease in occupancy.

The 0.3% increase in rehabilitation hospital expenses for the nine months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to higher operating and plant expenses offset by decreases in labor and benefit expenses due to a decrease in occupancy.

The 9.2% decrease in rent expense for the nine months ended September 30, 2010 compared to the comparable period in 2009 was due to rent reductions pursuant to a lease realignment agreement we entered with SNH in August 2009, offset by our payment of additional rent for rehabilitation hospital capital improvements purchased by SNH after January 1, 2009.

Corporate and other:

The 7.9% increase in institutional pharmacy revenues for the nine months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to adding new customers, partially offset by decreased revenues per prescription due to a higher percentage of sales of generic drugs.

The 5.9% increase in institutional pharmacy expenses for the nine months ended September 30, 2010 compared to the comparable period in 2009 was primarily due to increases in cost of sales as a result of increased pharmacy sales and the resulting increased labor and benefit expenses associated with serving additional customers.

The 5.3% increase in general and administrative expenses for the nine months ended September 30, 2010 compared to the comparable period in 2009 was primarily the result of increased regional support costs, wage increases and expenses associated with 11 communities we began to operate during the fourth quarter of 2009 and the one community we acquired during the third quarter of 2010. General and administrative expenses as a percentage of total revenue was 4.4% for the nine months ended September 30, 2010 and 2009.

Our interest, dividend and other income decreased by 30.8% for the nine months ended September 30, 2010 compared to the comparable period in 2009 primarily as a result of lower yields on our investments.

Our interest and other expense decreased by 33.6% for the nine months ended September 30, 2010 compared to the comparable period in 2009 primarily as a result of our purchase and retirement of $85.4 million of our outstanding Notes since January 1, 2009.

During the nine months ended September 30, 2010, we recognized a gain of $4.9 million on investments in trading securities related to our holdings of Auction Rate Securities, or ARS, offset by a loss of $4.7 million on the value of a put right related to our ARS.

During the nine months ended September 30, 2009, we recognized:

· an unrealized gain of $3.5 million on investments in trading securities related to our holdings of ARS;

· an unrealized loss of $2.8 million on the value of put right related to our ARS; and

· an “other than temporary impairment” of $2.9 million on investments in securities held by our captive insurance companies.

During the nine months ended September 30, 2010, we purchased and retired $8.6 million par value of our outstanding Notes for $7.7 million plus accrued interest. As a result of the purchase we recorded a gain on extinguishment of debt of $618,000, net of related unamortized costs. This gain is offset by $134,000 related to a penalty to prepay one of our HUD insured mortgages.

During the nine months ended September 30, 2009, we purchased and retired $74.9 million par value of our outstanding Notes that we purchased for $38.5 million, plus accrued interest. As a result of these purchases we recorded a gain on extinguishment of debt of $34.3 million, net of related unamortized costs.

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For the nine months ended September 30, 2010, we recognized income tax expense of $930,000, which includes a tax benefit of $308,000 related to prior year refunds resulting from the application of tax credits that offset federal alternative minimum taxes, and $1.1 million of state taxes that are payable without regard to our tax loss carry forwards. Tax expense also includes $122,000 related to a non-cash deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 2010, we generated $110.0 million of cash flow from operating activities. As of September 30, 2010, we had unrestricted cash and cash equivalents of $36.7 million and no amounts outstanding on our $35.0 million revolving line of credit.

We believe that a combination of our existing cash, cash equivalents, net cash from operations and our ability to borrow on our revolving line of credit will continue to provide us with adequate cash flow to run our businesses and invest in and maintain our properties for the next 12 months and the foreseeable future after the next 12 months. If, however, our occupancies continue to decline and we are unable to generate positive cash flow for some period of time, we will explore alternatives to fund our operations. Such alternatives in the short term and long term may include further reducing costs across the Company, incurring additional debt other than our revolving line of credit, engaging in sale leaseback transactions relating to our unencumbered communities and issuing new equity securities.

Assets and Liabilities

Our total current assets at September 30, 2010 were $136.6 million, compared to $180.4 million at December 31, 2009. At September 30, 2010, we had cash and cash equivalents of $36.7 million compared to $5.0 million at December 31, 2009. Our current liabilities were $141.0 million at September 30, 2010 compared to $178.2 million at December 31, 2009. The decrease in current assets is primarily due to our use of cash on hand and cash generated from our sale of our ARS to UBS for our repayment of our outstanding borrowings on our non-recourse credit facility with UBS, the acquisition of a continuing care community and the prepayment of one of our HUD insured mortgages. The decrease in current liabilities is primarily the result of our repayment of our outstanding borrowings on our non-recourse credit facility with UBS. During the first nine months of 2010, we purchased and retired $8.6 million par value of our Notes for $7.8 million plus accrued interest.

We had cash flows from continuing operations of $110.0 million for the nine months ended September 30, 2010 compared to $32.8 million for the same period in 2009. Acquisitions of property plant and equipment, on a net basis after considering the proceeds from sales of fixed assets to SNH, were $13.7 million and $17.3 million for the nine months ended September 30, 2010 and 2009, respectively.

Our Leases with SNH

Our total annual minimum rent payable to SNH as of September 30, 2010 was $186.1 million, excluding percentage rent based on increases in gross revenues at certain properties. We paid approximately $1.1 million and $911,000 in percentage rent to SNH for the three months ended September 30, 2010 and 2009, respectively, and approximately $3.2 million and $2.5 million for the nine months ended September 30, 2010 and 2009, respectively. During the nine months ended September 30, 2010, pursuant to the terms of our leases with SNH, SNH purchased $23.8 million of improvements made to our properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $1.9 million.

Our Revenues

Our revenues from services to residents at our senior living communities and patients of our rehabilitation hospitals and clinics are our primary source of cash to fund our operating expenses, including rent, principal and interest payments on our debt and our capital expenditures.

During the past two years, our occupancy has been negatively affected by weak economic conditions throughout the Country. These conditions have impacted many companies both within and outside of our industry and it is unclear

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when current economic conditions, especially the housing market, may materially improve. Although many of the services we provide are needs driven, some of those needs may be deferred during recessions; for example, relocating to a senior living community may be delayed when sales of houses are delayed.

At some of our senior living communities (principally our SNFs) and at our rehabilitation hospitals and clinics, operating revenues for skilled nursing and rehabilitation services are received from the Medicare and Medicaid programs. These programs are discussed in Part I of our Annual Report, under the caption “Government Regulation and Reimbursement,” and in Part 1, Item 2 of our Quarterly Reports on Form 10-Q for the periods ending March 31, 2010 and June 30, 2010, or our Prior 2010 Quarterly Reports, under the caption “Our Revenues.” We derived 32.7% and 33.5% of our combined senior living and rehabilitation hospital revenues from these programs during the nine months ended September 30, 2010 and 2009, respectively.

Our net Medicare revenues from services to senior living community residents and at our rehabilitation hospitals totaled $156.8 million and $153.7 million for the nine months ended September 30, 2010 and 2009, respectively. The Federal Centers for Medicare and Medicaid Services, or CMS, adopted rules that took effect on October 1, 2010 that it estimates will increase aggregate Medicare payment rates for SNFs by approximately 1.7% overall in federal fiscal year 2011. CMS adopted other rules that also took effect October 1, 2010 that it estimates will increase aggregate Medicare payment rates for inpatient rehabilitation facilities, or IRFs, by approximately 2.16% overall in federal fiscal year 2011.

Our net Medicaid revenues from services to senior living community residents totaled $127.2 million and $121.3 million for the nine months ended September 30, 2010 and 2009, respectively. Some of the states in which we operate either have not raised Medicaid rates by amounts sufficient to offset increasing costs or have frozen or reduced, or are expected to freeze or reduce, Medicaid rates. Also, certain increases in federal payments to states for Medicaid programs, in effect since October 1, 2008, pursuant to the American Recovery and Reinvestment Act of 2009, that were scheduled to expire on December 31, 2010, have been extended for an additional six months through June 30, 2011, but at substantially reduced levels. The phasing out of these temporary federal payments, combined with the anticipated slow recovery of state revenues, is expected to result in continued difficult state fiscal conditions. Some state budget deficits likely will increase, and it is possible that certain states will reduce Medicaid payments to healthcare services providers like us as part of an effort to balance their budgets.

The new comprehensive health care reform law known as the Patient Protection and Affordable Care Act, or PPACA, adopted in March 2010 and discussed in Part 1, Item 2 of our Prior 2010 Quarterly Reports under the caption “Our Revenues,” includes policy changes and provisions that may result in reduced Medicare rates of payment for SNFs and IRFs or a failure of such rates to cover our cost increases over the next several years. For example, PPACA affects Medicare reimbursement to SNFs in federal fiscal year 2011 by requiring CMS to delay its planned use of a revised case mix classification system, RUG-IV, until federal fiscal year 2012, with certain exceptions, while mandating that a new resident assessment instrument, or MDS 3.0, designed to collect clinical data for RUG-IV, be implemented as planned in federal fiscal year 2011. Because CMS has not completed the payment program designs required to incorporate the features mandated by PPACA, CMS has adopted interim SNF payment rates that took effect on October 1, 2010. After CMS has completed the required infrastructure, it plans to retroactively adjust the payment rates to incorporate the revisions required by PPACA. We are unable to predict at this time the effect that these changes in the Medicare FY 2011 payment system for SNFs will have on our operating income.

The type and magnitude of the potential Medicare and Medicaid policy changes, rate reductions or other changes and the impact on us of the possible failure of these programs to increase rates to match our increasing expenses cannot currently be estimated, but they may be material to our operations and may affect our future results of operations. Similarly, we are unable to predict the impact on us of the insurance reforms, payment reforms, and health care delivery systems reforms contained in and to be developed pursuant to PPACA. Expanded insurance availability may provide more paying customers for the services we provide. However, if the changes to be implemented under PPACA result in reduced payments for our services, or the failure of Medicare, Medicaid or insurance payment rates to cover our increasing costs, our future financial results could be adversely and materially affected.

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Debt Financings and Covenants

At September 30, 2010, we had $41.1 million principal amount of Notes outstanding that were issued pursuant to an indenture in October 2006. These Notes are convertible into our common shares at any time. The initial and current conversion rate, which is subject to adjustment, is 76.9231 common shares per $1,000 principal amount of Notes, which represents a conversion price of $13.00 per share. The Notes are guaranteed by certain of our wholly owned subsidiaries. These Notes mature on October 15, 2026. We may prepay the Notes at any time after October 20, 2011 and the Note holders may require that we purchase all or a portion of these Notes on October 15 of each of 2013, 2016 and 2021. As of September 30, 2010 and October 28, 2010, we believe we are in compliance with all applicable covenants of this indenture.

During the nine months ended September 30, 2010, we purchased and retired $8.6 million par value of our outstanding Notes for $7.8 million, plus accrued interest. During the nine months ended September 30, 2009, we purchased and retired $74.9 million par value of our outstanding Notes for $38.5 million, plus accrued interest. As a result of these purchases we recorded a gain on extinguishment of debt during the nine months ended September 30, 2010 and 2009 of $618,000 and $34.3 million, respectively, net of related unamortized costs and transaction costs.

We have a $35.0 million revolving line of credit and security agreement, or our Credit Agreement, which terminates on March 18, 2013, when all amounts outstanding thereunder are due. Borrowings under our Credit Agreement are available for acquisitions, working capital and general business purposes. Funds available under our Credit Agreement may be drawn, repaid and redrawn until maturity and no principal payment is due until maturity. We borrow in U.S. dollars and borrowings under our Credit Agreement bear interest at LIBOR (with a floor of 2% per annum) plus 400 basis points. We are the borrower under our Credit Agreement and certain of our subsidiaries guarantee our obligations under our Credit Agreement, which is secured by our and our guarantor subsidiaries’ accounts receivable and related collateral. Our Credit Agreement contains covenants requiring us to maintain certain financial ratios, places limits on our ability to incur or assume debt or create liens with respect to certain of our properties and has other customary provisions. Our Credit Agreement also provides for acceleration of payment of all amounts payable under our Credit Agreement upon the occurrence and continuation of certain events of default. As of September 30, 2010 and October 28, 2010, no amounts were outstanding and $35.0 million was available under our Credit Agreement. As of September 30, 2010 and October 28, 2010, we believe we are in compliance with all applicable covenants under our Credit Agreement.

On July 1, 2010, we repaid our outstanding balance of $6.3 million and terminated our non-recourse credit facility with UBS.

At September 30, 2010, two of our communities were encumbered by HUD insured mortgage notes totaling $7.9 million. The weighted average interest rate on our HUD loans is 5.43%. Payments of principal and interest are due monthly until the mortgage notes mature; one note matures in June 2035 and the other matures in May 2039. In July 2010, we prepaid another of our HUD insured mortgages secured by one of our senior living communities. We paid $4.6 million to retire this note which consisted of approximately, $4.5 million in principal and interest and $134,000 in prepayment penalties. These mortgages contain standard HUD mortgage covenants. As of September 30, 2010 and October 28, 2010, we believe we are in compliance with all covenants of our mortgages.

Off Balance Sheet Arrangements

As of September 30, 2010, we had no off balance sheet arrangements, commercial paper, derivatives, swaps, hedges, third party guarantees, material joint ventures or partnerships, except for the pledge of certain of our assets (e.g., accounts receivable) arising from our operation of 56 properties owned by SNH and leased to us which secures SNH’s borrowings from its lender.

Related Person Transactions

SNH is our former parent company, SNH is our largest landlord and SNH currently owns approximately 9.1% of our common shares. RMR provides management services to both us and SNH. One of our Managing Directors is the majority owner of RMR and also serves as a Managing Trustee of SNH. As of September 30, 2010, we leased 186 of our 216 senior living communities, including two that we report as discontinued operations, and two rehabilitation hospitals from SNH. Under our leases with SNH, we pay SNH rent based on minimum annual amounts plus percentage amounts based on increases in gross revenues at certain properties. During the three and

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nine months ended September 30, 2010, pursuant to the terms of our leases with SNH, SNH purchased $8.0 million and $23.8 million, respectively, of improvements made to our properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $638,000 and $1.9 million, respectively. In August 2010, at our request, SNH sold four skilled nursing facilities located in Nebraska with aggregate 196 living units that we leased from SNH and our rent to SNH decreased by approximately $145,000 per year. Our total annual rent payable to SNH under our leases with SNH as of September 30, 2010 was $186.1 million, excluding percentage rent based on increases in gross revenues at certain properties. Additional information regarding our leases with SNH appears in Item 2 of our Annual Report on Form 10-K for the year ended December 31, 2009, or the Annual Report, under in the section captioned “Our SNH Leases”.

RMR provides certain management, administrative and information system services to us under the business management agreement, as amended in January 2010. During the three months ended September 30, 2010 and 2009, we incurred management services expenses due to RMR of $2.9 million and $2.7 million, respectively. During the nine months ended September 30, 2010 and 2009, we incurred management services expense due to RMR of $8.4 million and $7.9 million, respectively.

As of September 30, 2010, we have invested approximately $5.2 million in Affiliates Insurance, an Indiana licensed insurance company organized by RMR and other companies to which RMR provides management services. All of our directors are also directors of Affiliates Insurance and RMR provides certain management services to Affiliates Insurance. We own 14.29% of Affiliates Insurance. During the three months and nine months ended September 30, 2010, we recognized income and loss of approximately $35,000 and $17,000, respectively, related to this investment. In June 2010, we, RMR and other companies to which RMR provides management services purchased property insurance pursuant to an insurance program arranged by Affiliates Insurance. Our annual premiums and associated costs for this property insurance are expected to be approximately $2.9 million. We are currently investigating the possibilities to expand our insurance relationships with Affiliates Insurance because we believe we may realize improved coverage, lower insurance costs or profits by participating in the insurance programs and ownership of Affiliates Insurance.

For more information about our related person transactions, including our dealings with SNH, RMR, Affiliates Insurance, our Managing Directors and their affiliates and about the risks which may arise as a result of these and other related person transactions, please see our Annual Report and our other filings made with the SEC, and in particular, the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” in the Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement dated February 22, 2010 relating to our 2010 Annual Meeting of Shareholders and in Item 1.01 in our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 8, 2010.

Critical Accounting Policies

The critical accounting policies set forth in Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report, are unchanged except as set forth below to update our disclosure as it relates to reserves for the self insurance portions of our insurance programs. The language set forth below clarifies that , while, at certain times in the past, adjustments to a particular element of a reserve, such as employee health or workers compensation insurance costs, may have been material in relation to the amount of that element, in no circumstance has the adjustment in any period been material to the Company’s financial condition or results of operations. Otherwise, there have been no material changes during the period covered by this Quarterly Report on Form 10-Q to critical accounting policies previously disclosed in Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Determining reserves for the casualty, liability, workers compensation and healthcare losses and costs that we have incurred as of the end of a reporting period involves significant judgments based upon our experience and our expectations of future events, including projected settlements for pending claims, known incidents which we expect may result in claims, estimates of incurred but not yet reported claims, expected changes in premiums for insurance provided by insurers whose policies provide for retroactive adjustments, estimated litigation costs and other factors. Since these reserves are based on estimates, the actual expenses we incur may differ from the amount reserved. We regularly adjust these estimates to reflect changes in the foregoing factors, our actual claims experience,

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recommendations from our professional consultants, changes in market conditions and other factors; it is possible that such adjustments may be material.

Seasonality

Our senior living business is subject to modest effects of seasonality. During the calendar fourth quarter holiday periods, nursing home and assisted living residents are sometimes discharged to join family celebrations and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among nursing home and assisted living residents which can result in increased costs or discharges to hospitals. As a result of these factors, SNF and assisted living operations sometimes produce greater earnings in the second and third quarters of a calendar year and lesser earnings in the first and fourth quarters. We do not believe that this seasonality will cause fluctuations in our revenues or operating cash flow to such an extent that we will have difficulty paying our expenses, including rent, which do not fluctuate seasonally.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates is unchanged from December 31, 2009. Other than as described below, we do not foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

Changes in market interest rates affect the fair value of our fixed rate debt; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. For example: based upon discounted cash flow analysis, if prevailing interest rates were to increase by 10% of current interest rates and other credit market considerations remained unchanged, the aggregate market value of our $7.9 million mortgage debt and $41.1 million Notes outstanding on September 30, 2010 would decline by approximately $2.3 million; and, similarly, if prevailing interest rates were to decline by 10% of current interest rates and other credit market considerations remained unchanged, the aggregate market value of our $7.9 million mortgage debt and $41.1 million Notes outstanding on September 30, 2010, would increase by approximately $2.4 million.

Our revolving credit facility bears interest at floating rates and matures on March 18, 2013. As of September 30, 2010 and October 28, 2010, no amounts were outstanding under this credit facility. We borrow in U.S. dollars and borrowings under our revolving credit facility bear interest at LIBOR (with a floor of 2% per annum) plus 400 basis points. Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates, specifically LIBOR. A change in interest rates would not affect the value of any outstanding floating rate debt but could affect our operating results. For example, if the maximum amount of $35.0 million were drawn under our credit facility and interest rates above the floor or minimum rate decreased or increased by 1% per annum, our annual interest expense would decrease or increase by $350,000, or $0.01 per share, based on our currently outstanding common shares. If interest rates were to change gradually over time, the impact would occur over time.

Our exposure to fluctuations in interest rates may increase in the future if we incur debt to fund acquisitions or otherwise.

Item 4. Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Treasurer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, our President and Chief Executive Officer and our Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS. WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:

· OUR ABILITY TO OPERATE OUR SENIOR LIVING COMMUNITIES AND REHABILITATION HOSPITALS PROFITABLY;

· OUR ABILITY TO MEET OUR DEBT OBLIGATIONS;

· OUR ABILITY TO COMPLY AND TO REMAIN IN COMPLIANCE WITH APPLICABLE MEDICARE, MEDICAID AND OTHER RATE SETTING AND REGULATORY REQUIREMENTS;

· OUR EXPECTATION THAT WE WILL BENEFIT FINANCIALLY BY PARTICIPATING IN AFFILIATES INSURANCE WITH RMR AND COMPANIES TO WHICH RMR PROVIDES MANAGEMENT SERVICES; AND

· OTHER MATTERS.

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

· THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR RESIDENTS AND OTHER CUSTOMERS;

· COMPETITION WITHIN THE SENIOR LIVING INDUSTRY AND OUR OTHER BUSINESSES;

· INCREASES IN INSURANCE AND TORT LIABILITY COSTS;

· CHANGES IN MEDICARE AND MEDICAID POLICIES WHICH COULD RESULT IN REDUCTION OF RATES OF PAYMENT OR A FAILURE OF THESE RATES TO COVER OUR COST INCREASES;

· ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR MANAGING DIRECTORS, SNH, RMR AND THEIR AFFILIATES; AND

· COMPLIANCE WITH, AND CHANGES TO FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS WHICH COULD AFFECT OUR SERVICES.

FOR EXAMPLE:

· WE EXPECT TO OPERATE OUR REHABILITATION HOSPITALS AND PHARMACIES PROFITABLY. HOWEVER, WE HAVE HISTORICALLY EXPERIENCED LOSSES FROM THESE OPERATIONS AND WE MAY BE UNABLE TO OPERATE THESE BUSINESSES PROFITABLY;

· OUR PARTICIPATION IN AFFILIATES INSURANCE INVOLVES POTENTIAL FINANCIAL RISKS AND REWARDS TYPICAL OF ANY START UP BUSINESS VENTURE AS WELL AS OTHER FINANCIAL RISKS AND REWARDS SPECIFIC TO INSURANCE COMPANIES. ACCORDINGLY,

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OUR EXPECTED FINANCIAL BENEFITS FROM OUR INITIAL OR FUTURE INVESTMENTS IN AFFILIATES INSURANCE MAY BE DELAYED OR MAY NOT OCCUR; AND

· OUR RESIDENTS AND PATIENTS MAY BE UNABLE TO AFFORD OUR SERVICES WHICH COULD RESULT IN DECREASED OCCUPANCY AND REVENUES AT OUR SENIOR LIVING COMMUNITIES AND REHABILITATION HOSPITALS.

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS THE APPLICATION AND INTERPRETATION OF RECENTLY PASSED OR NEW LAWS AFFECTING OUR BUSINESS, CHANGES IN OUR REVENUES OR COSTS, OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.

THE INFORMATION CONTAINED ELSEWHERE IN OUR ANNUAL REPORT AND SUBSEQUENT DOCUMENTS FILED WITH THE SEC IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS. ALSO, OTHER IMPORTANT FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR FORWARD LOOKING STATEMENTS ARE DESCRIBED MORE FULLY UNDER “ITEM 1A. RISK FACTORS” IN OUR ANNUAL REPORT.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

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Part II. Other Information

Item 6. Exhibits

10.1		Form of Restricted Share Agreement. ( Filed herewith. )

10.2		Partial Termination of and Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 1, 2010, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. ( Filed herewith. )

10.3		Partial Termination of and Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 1, 2010, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant. ( Filed herewith. )

31.1		Rule 13a-14(a) Certification of Chief Executive Officer. ( Filed herewith. )

31.2		Rule 13a-14(a) Certification of Chief Financial Officer. ( Filed herewith. )

32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. ( Furnished herewith. )

99.1		Confirmation of Guarantees and Confirmation of and Amendment to Security Agreements, dated as of August 1, 2010, among certain affiliates of Senior Housing Properties Trust and certain affiliates of the Company. ( Filed herewith. )

99.2		Confirmation of Guarantees and Confirmation of and Amendment to Security Agreements, dated as of August 1, 2010, among certain affiliates of Senior Housing Properties Trust and certain affiliates of the Company. ( Filed herewith. )

99.3		Amendment to Subtenant Security Agreement, dated as of August 1, 2010, among certain affiliates of Senior Housing Properties Trust and certain affiliates of the Company. ( Filed herewith. )

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIVE STAR QUALITY CARE, INC.

	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President and Chief Executive Officer
	Dated: October 28, 2010

	/s/ Paul V. Hoagland
	Paul V. Hoagland
	Treasurer and Chief Financial Officer
	(Principal Financial Officer)
	Dated: October 28, 2010

Exhibit 10.1

FIVE STAR QUALITY CARE, INC.

RESTRICTED SHARE AGREEMENT

This Restricted Share Agreement (this “Agreement”) is made as of , between (the “Recipient”) and Five Star Quality Care, Inc. (the “Company”).

In consideration of the mutual promises and covenants contained in this Agreement, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Grant of Shares . The Company hereby grants to the Recipient, effective as of the date of this Agreement, shares of its common shares. The shares so granted are hereinafter referred to as the “Shares,” which term shall also include any shares of the Company issued to the Recipient by virtue of his or her ownership of the Shares, by share dividend, share split, recapitalization or otherwise.

2. Vesting; Repurchase of Shares .

(a) The Shares shall vest one-fifth as of the date hereof, a further one-fifth on the first anniversary of the date of this Agreement, a further one-fifth on the second anniversary of the date of this Agreement, a further one-fifth on the third anniversary of the date of this Agreement and the final one-fifth on the fourth anniversary of the date of this Agreement. Any Shares not vested as of any date are herein referred to as “Unvested Shares.”

(b) In the event the Recipient ceases to render significant services, whether as an employee or otherwise, to (i) the Company, (ii) the entity which is the manager or shared services provider to the Company or an entity controlled by, under common control with or controlling such entity (collectively, the “Manager”), or (iii) an affiliate of the Company (which shall be deemed for such purpose to include any other entity to which the Manager is the manager or shared services provider), the Company shall have the right and option to purchase from the Recipient, for an amount equal to $.01 per share (as adjusted for any share split or combination, share dividend, recapitalization or similar event) all or any portion of the Unvested Shares as of the date the Recipient ceases to render such services. The Company may exercise such purchase option by delivering or mailing to the Recipient (or his or her estate), at any time after the Recipient has ceased to render such services, a written notice of exercise of such option. Such notice shall specify the number of Unvested Shares to be purchased. The price to be paid for the Unvested Shares to be repurchased may be payable, at the option of the Company, by wire transfer of immediately available funds or in cash (by check) or any other reasonable method.

3. Legends . Each certificate or share statement relating to the Shares shall prominently bear legends in substantially the following terms:

“THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO AN INCENTIVE PLAN MAINTAINED BY THE CORPORATION. THESE SHARES MAY BE SUBJECT TO TRANSFER AND/OR VESTING RESTRICTIONS, AND UNVESTED SHARES ARE SUBJECT TO REPURCHASE RIGHTS CONTAINED IN THE PLAN, THE RELATED GRANT OF SHARES OR AN AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THESE SHARES. A COPY OF APPLICABLE RESTRICTIONS AND REPURCHASE RIGHTS WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE CORPORATION.”

Certificates evidencing Shares and Shares not evidenced by certificates shall also bear or contain, as applicable, legends and notations as may be required by the Company’s incentive plan or the Company’s charter or bylaws, each as in effect from time to time, or as the Company may otherwise determine appropriate.

4. Tax Withholding. To the extent required by law, the Company shall withhold or cause to be withheld income and other taxes incurred by the Recipient by reason of a grant of Shares, and the Recipient agrees that he or she shall upon request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations from time to time (including as Shares become vested) as the Company may request.

5. Termination . This Agreement shall continue in full force and effect until the earliest to occur of the following, at which time except as otherwise specified below this Agreement shall terminate: (a) the date on which all repurchase rights referred to in Section 2 hereof have terminated; or (b) except to the extent specified in such notice, upon notice of termination by the Company to the Recipient pursuant to action taken by the Company’s Board of Directors.

6. Miscellaneous .

(a) Amendments . Neither this Agreement nor any provision hereof may be changed or modified except by an agreement in writing executed by the Recipient and the Company; provided, however, that any change or modification that does not adversely affect the rights hereunder of the Recipient, as they may exist immediately prior to the effective date of such change or modification, may be adopted by the Company without an agreement in writing executed by the Recipient, and the Company shall give the Recipient written notice of such change or modification reasonably promptly following the adoption of such change or modification.

(b) Binding Effect of the Agreement . This Agreement shall inure to the benefit of, and be binding upon , the Company, the Recipient and their respective estates, heirs, executors, transferees, successors, assigns and legal representatives.

(c) Provisions Separable . In the event that any of the terms of this Agreement shall be or become or is declared to be illegal or unenforceable by any court or other authority of competent jurisdiction, such terms shall be null and void and shall be deemed deleted from this Agreement, and all the remaining terms of this Agreement shall remain in full force and effect.

(d) Notices . Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered by hand or by facsimile or sent by registered certified mail, postage prepaid, to the party addressed as follows, unless another address has been substituted by notice so given:

To the Recipient: To the Recipient’s address as set forth on the signature page hereof.

To the Company: Five Star Quality Care, Inc.

400 Centre Street

Newton, MA 02458

Attn: Secretary

(e) Construction . The headings and subheadings of this Agreement have been inserted for convenience only, and shall not affect the construction of the provisions hereof. All references to sections of this Agreement shall be deemed to refer as well to all subsections which form a part of such section.

(f) Employment Agreement . This Agreement shall not be construed as an agreement by the Company, any affiliate of the Company to employ the Recipient, nor is the Company, any affiliate of the Company obligated to continue employing the Recipient by reason of this Agreement or the grant of shares to the Recipient hereunder.

(g) Applicable Law . This Agreement shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or caused this Agreement to be executed under seal, as of the date first above written.

	FIVE STAR QUALITY CARE, INC.

	By:
	Title:

	RECIPIENT:


	[Name]
	[Address]

Exhibit 10.2

PARTIAL TERMINATION OF AND FOURTH AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 1)

THIS PARTIAL TERMINATION OF AND FOURTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 1) (this “ Amendment ”) is made and entered into as of August 1, 2010 by and among each of the parties identified on the signature pages hereof as a landlord (collectively, “ Landlord ”) and FIVE STAR QUALITY CARE TRUST, a Maryland business trust (“ Tenant ”).

W I T N E S S E T H :

WHEREAS , pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 4, 2009, as amended by that certain Partial Termination of and First Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of October 1, 2009, that certain Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of November 17, 2009, and that certain Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of December 10, 2009 (as so amended, “ Amended Lease No. 1 ”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in Amended Lease No. 1), all as more particularly described in Amended Lease No. 1; and

WHEREAS , on or about the date hereof, SPTIHS Properties Trust has sold a portion of the Leased Property consisting of the real property and related improvements known as the Rose Brook Care Center located at 106 Fifth Street, Edgar, Nebraska and more particularly described on Exhibit A-35 to Amended Lease No. 1 (the “ Rose Brook Property ”); and

WHEREAS, SPTIHS Properties Trust, the other entities comprising Landlord and Tenant wish to amend Amended Lease No. 1 to terminate Amended Lease No. 1 with respect to the Rosebrook Property;

NOW, THEREFORE , in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree that, effective as of the date hereof, Amended Lease No. 1 is hereby amended as follows:

1. Partial Termination of Lease . Amended Lease No. 1 is terminated with respect to the Rose Brook Property and neither Landlord nor Tenant shall have any further rights or liabilities thereunder with respect to the Rose Brook Property from and after the date hereof, except for those rights and liabilities which by their terms survive the termination of Amended Lease No. 1.

2. Definition of Minimum Rent . The defined term “Minimum Rent” set forth in Section 1.68 of Amended Lease No. 1 is deleted in its entirety and replaced with the following:

“ Minimum Rent ” shall mean the sum of Fifty-Two Million, Eight Hundred Ninety-Eight Thousand, Six Hundred Seventy-One and 89/100 Dollars ($52,898,671.89) per annum.

3. Schedule 1 . Schedule 1 to Amended Lease No. 1 is deleted in its entirety and replaced with Schedule 1 attached hereto.

4. Exhibit A . Exhibit A to Amended Lease No. 1 is amended by deleting Exhibit A-35 attached thereto in its entirety and replacing it with “Intentionally Deleted.”

5. Ratification . As amended hereby, Amended Lease No. 1 is ratified and confirmed.

[Remainder of page intentionally left blank;

Signature pages follow]

IN WITNESS WHEREOF , the parties have executed this Amendment as a sealed instrument as of the date above first written.

	LANDLORD:

	SNH SOMERFORD PROPERTIES TRUST


	By:	/s/ David J. Hegarty
		David J. Hegarty
		President

	SPTMNR PROPERTIES TRUST


	By:	/s/ David J. Hegarty
		David J. Hegarty
		President

	SNH/LTA PROPERTIES TRUST


	By:	/s/ David J. Hegarty
		David J. Hegarty
		President

	SPTIHS PROPERTIES TRUST


	By:	/s/ David J. Hegarty
		David J. Hegarty
		President

	SNH CHS PROPERTIES TRUST


	By:	/s/ David J. Hegarty
		David J. Hegarty
		President

	SNH/LTA PROPERTIES GA LLC


	By:	/s/ David J. Hegarty
		David J. Hegarty
		President

	TENANT:

	FIVE STAR QUALITY CARE TRUST


	By:	/s/ Bruce J. Mackey Jr.
		Bruce J. Mackey Jr.
		President

SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-1	La Mesa Healthcare Center 2470 South Arizona Avenue Yuma, AZ 85364	2005	$	6,333,157	12/31/2001	10	%

A-2	SunQuest Village of Yuma 265 East 24 th Street Yuma, AZ 85364	2005	$	543,595	12/31/2001	10	%

A-3	Somerford Place - Encinitas 1350 South El Camino Real Encinitas, CA 92024	2009	N/A		03/31/2008	8	%

A-4	Somerford Place - Fresno 6075 North Marks Avenue Fresno, CA 93711	2009	N/A		03/31/2008	8	%

A-5	Lancaster Healthcare Center 1642 West Avenue J Lancaster, CA 93534	2005	$	6,698,648	12/31/2001	10	%

A-6	Somerford Place - Redlands 1319 Brookside Avenue Redlands, CA 92373	2009	N/A		03/31/2008	8	%

A-7	Somerford Place - Roseville 110 Sterling Court Roseville, CA 95661	2009	N/A		03/31/2008	8	%

A-8	Leisure Pointe 1371 Parkside Drive San Bernardino, CA 92404	2007	$	1,936,220	09/01/2006	8.25	%

A-9	Van Nuys Health Care Center 6835 Hazeltine Street Van Nuys, CA 91405	2005	$	3,626,353	12/31/2001	10	%

A-10	Mantey Heights Rehabilitation & Care Center 2825 Patterson Road Grand Junction, CO 81506	2005	$	5,564,949	12/31/2001	10	%

A-11	Cherrelyn Healthcare Center 5555 South Elati Street Littleton, CO 80120	2005	$	12,574,200	12/31/2001	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-12	Somerford House and Somerford Place - Newark I & II 501 South Harmony Road and 4175 Ogletown Road Newark, DE 19713	2009	N/A		03/31/2008	8	%

A-13	Tuscany Villa Of Naples (aka Buena Vida) 8901 Tamiami Trail East Naples, FL 34113	2008	$	2,157,675	09/01/2006	8.25	%

A-14	College Park Healthcare Center 1765 Temple Avenue College Park, GA 30337	2005	$	4,130,893	12/31/2001	10	%

A-15	Morningside of Columbus 7100 South Stadium Drive Columbus, GA 31909	2006	$	1,381,462	11/19/2004	9	%

A-16	Morningside of Dalton 2470 Dug Gap Road Dalton, GA 30720	2006	$	1,196,357	11/19/2004	9	%

A-17	Morningside of Evans 353 North Belair Road Evans, GA 30809	2006	$	1,433,421	11/19/2004	9	%

A-18	Vacant Land Adjacent to Morningside of Macon 6191 Peake Road Macon, GA 31220	2006	N/A		11/19/2004	9	%

A-19	Intentionally Deleted.	N/A	N/A		N/A	N/A

A-20	Union Park Health Services 2401 East 8 th Street Des Moines, IA 50316	2005	$	4,404,678	12/31/2001	10	%

A-21	Park Place 114 East Green Street Glenwood, IA 51534	2005	$	8,109,512	12/31/2001	10	%

A-22	Prairie Ridge Care & Rehabilitation 608 Prairie Street Mediapolis, IA 52637	2005	$	3,234,505	12/31/2001	10	%

A-23	Ashwood Place 102 Leonardwood Frankfort, KY 40601	2007	$	1,769,726	09/01/2006	8.25	%

A-24	Somerford Place - Annapolis 2717 Riva Road Annapolis, MD 21401	2009	N/A		03/31/2008	8	%

A-25	Somerford Place - Columbia 8220 Snowden River Parkway Columbia, MD 21045	2009	N/A		03/31/2008	8	%

A-26	Somerford Place - Frederick 2100 Whittier Drive Frederick, MD 21702	2009	N/A		03/31/2008	8	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-27	Somerford Place - Hagerstown 10114 & 10116 Sharpsburg Pike Hagerstown, MD 21740	2009	N/A		03/31/2008	8	%

A-28	The Wellstead of Rogers 20500 and 20600 South Diamond Lake Road Rogers, MN 55374	2009	N/A		03/01/2008	8	%

A-29	Arbor View Healthcare & Rehabilitation (aka Beverly Manor) 1317 North 36th St St. Joseph, MO 64506	2005	$	4,339,882	12/31/2001	10	%

A-30	Hermitage Gardens of Oxford 1488 Belk Boulevard Oxford, MS 38655	2007	$	1,816,315	10/01/2006	8.25	%

A-31	Hermitage Gardens of Southaven 108 Clarington Drive Southaven, MS 38671	2007	$	1,527,068	10/01/2006	8.25	%

A-32	Ashland Care Center 1700 Furnace Street Ashland, NE 68003	2005	$	4,513,891	12/31/2001	10	%

A-33	Blue Hill Care Center 414 North Wilson Street Blue Hill, NE 68930	2005	$	2,284,065	12/31/2001	10	%

A-34	Central City Care Center 2720 South 17 th Avenue Central City, NE 68462	2005	$	2,005,732	12/31/2001	10	%

A-35	Intentionally deleted.	N/A	N/A		N/A	N/A

A-36	Gretna Community Living Center 700 South Highway 6 Gretna, NE 68028	2005	$	3,380,356	12/31/2001	10	%

A-37	Sutherland Care Center 333 Maple Street Sutherland, NE 69165	2005	$	2,537,340	12/31/2001	10	%

A-38	Waverly Care Center 11041 North 137 th Street Waverly, NE 68462	2005	$	3,066,135	12/31/2001	10	%

A-39	Rolling Hills Manor 600 Newport Drive Baldwin, PA 15234	2006	$	1,791,274	10/31/2005	9	%

A-40	Ridgepointe 5301 Brownsville Road Pittsburgh, PA 15236	2006	$	1,944,499	10/31/2005	9	%

A-41	Mount Vernon of South Park 1400 Riggs Road South Park, PA 15129	2006	$	2,718,057	10/31/2005	9	%

A-42	Morningside of Gallatin 1085 Hartsville Pike Gallatin, TN 37066	2006	$	1,343,801	11/19/2004	9	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-43	Walking Horse Meadows 207 Uffelman Drive Clarksville, TN 37043	2007	$	1,471,410	01/01/2007	8.25	%

A-44	Morningside of Belmont 1710 Magnolia Boulevard Nashville, TN 37212	2006	$	3,131,648	06/03/2005	9	%

A-45	Dominion Village at Chesapeake 2856 Forehand Drive Chesapeake, VA 23323	2005	$	1,416,951	05/30/2003	10	%

A-46	Dominion Village at Williamsburg 4132 Longhill Road Williamsburg, VA 23188	2005	$	1,692,753	05/30/2003	10	%

A-47	Heartfields at Richmond 500 North Allen Avenue Richmond, VA 23220	2005	$	1,917,765	10/25/2002	10	%

A-48	Brookfield Rehabilitation and Specialty Care (aka Woodland Healthcare Center) 18741 West Bluemound Road Brookfield, WI 53045	2005	$	13,028,846	12/31/2001	10	%

A-49	Meadowmere - Southport Assisted Living 8350 and 8351 Sheridan Road Kenosha, WI 53143	2009	N/A		01/04/2008	8	%

A-50	Meadowmere - Madison Assisted Living 5601 Burke Road Madison, WI 53718	2009	N/A		01/04/2008	8	%

A-51	Sunny Hill Health Care Center 4325 Nakoma Road Madison, WI 53711	2005	$	3,237,633	12/31/2001	10	%

A-52	Mitchell Manor Senior Living 5301 West Lincoln Avenue West Allis, WI 53219	2009	N/A		01/04/2008	8	%

A-53	Laramie Care Center 503 South 18 th Street Laramie, WY 82070	2005	$	4,473,949	12/31/2001	10	%

A-54	Haven in Highland Creek 5920 McChesney Drive Charlotte, NC 28269 Laurels in Highland Creek 6101 Clark Creek Parkway Charlotte, NC 28269	2010	N/A		11/17/2009	8.75	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate

A-55	Haven in the Village at Carolina Place 13150 Dorman Road Pineville, NC 28134 Laurels in the Village at Carolina Place 13180 Dorman Road Pineville, NC 28134	2010	N/A	11/17/2009	8.75	%

A-56	Haven in the Summit 3 Summit Terrace Columbia, SC 29229	2010	N/A	11/17/2009	8.75	%

A-57	Haven in the Village at Chanticleer 355 Berkmans Lane Greenville, SC 29605	2010	N/A	11/17/2009	8.75	%

A-58	Haven in the Texas Hill Country 747 Alpine Drive Kerrville, TX 78028	2010	N/A	11/17/2009	8.75	%

A-59	Haven in Stone Oak 511 Knights Cross Drive San Antonio, TX 78258 Laurels in Stone Oak 575 Knights Cross Drive San Antonio, TX 78258	2010	N/A	11/17/2009	8.75	%

A-60	Eastside Gardens 2078 Scenic Highway North Snellville, Georgia 30078	2010	N/A	12/10/2009	8.75	%

Exhibit 10.3

PARTIAL TERMINATION OF AND SECOND AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 2)

THIS PARTIAL TERMINATION OF AND SECOND AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 2) (this “ Amendment ”) is made and entered into as of August 1, 2010 by and among each of the parties identified on the signature pages hereof as a landlord (collectively, “ Landlord ”) and each of the parties identified on the signature pages hereof as a tenant (jointly and severally, “ Tenant ”).

W I T N E S S E T H :

WHEREAS , pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 4, 2009, as amended by that certain Partial Termination of and First Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of November 1, 2009 (as so amended, “ Amended Lease No. 2 ”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in Amended Lease No. 2), all as more particularly described in Amended Lease No. 2; and

WHEREAS , on or about the date hereof, SPTIHS Properties Trust has sold certain real property and related improvements, as follows: (i) the Ainsworth Care Center located at 143 North Fullerton, Ainsworth, Nebraska and more particularly described on Exhibit A-30 to Amended Lease No. 2 (the “ Ainsworth Property ”), (ii) the Exeter Care Center located at 425 South Empire Avenue, Exeter, Nebraska and more particularly described on Exhibit A-32 to Amended Lease No. 2 (the “ Exeter Property ”) and (iii) Logan Valley Manor located at 1035 Diamond Street, Lyons, Nebraska and more particularly described on Exhibit A-34 to Amended Lease No. 2 (the “ Logan Valley Manor Property ” and, together with the Ainsworth Property and the Exeter Property, collectively, the “ Nebraska Sale Properties ”); and

WHEREAS, in connection with the sale of the Nebraska Sale Properties, Landlord and Tenant wish to amend Amended Lease No. 2 to terminate Amended Lease No. 2 with respect to the Nebraska Sale Properties;

as of the date hereof, Amended Lease No. 2 is hereby amended as follows:

1. Partial Termination of Lease . Amended Lease No. 2 is terminated with respect to the Nebraska Sale Properties and neither Landlord nor Tenant shall have any further rights or liabilities thereunder with respect to the Nebraska Sale Properties from and after the date hereof, except for those rights and liabilities which by their terms survive the termination of Amended Lease No. 2.

2. Definition of Minimum Rent . The defined term “Minimum Rent” set forth in Section 1.68 of Amended Lease No. 2 is deleted in its entirety and replaced with the following:

“ Minimum Rent ” shall mean the sum of Forty-Eight Million, Seven Hundred Ninety-Four Thousand, Eight Hundred Thirty-Four and 59/100 Dollars ($48,794,834.59) per annum.

3. Schedule 1 . Schedule 1 to Amended Lease No. 2 is deleted in its entirety and replaced with Schedule 1 attached hereto.

4. Exhibit A . Exhibit A to Amended Lease No. 2 is amended by deleting each of Exhibit A-30, Exhibit A-32 and Exhibit A-34 attached thereto in their respective entireties and replacing each of them with “Intentionally Deleted.”

5. Ratification . As amended hereby, Amended Lease No. 2 is ratified and confirmed.

[Remainder of page intentionally left blank;

signature pages follow]

IN WITNESS WHEREOF , the parties have caused this Amendment to be duly executed as a sealed instrument as of the date first above written.

		LANDLORD:

		SPTIHS PROPERTIES TRUST

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

		SPTMNR PROPERTIES TRUST

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

		SNH/LTA PROPERTIES GA LLC

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

		SNH/LTA PROPERTIES TRUST

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

		O.F.C. CORPORATION

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

		SNH CHS PROPERTIES TRUST

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

		CCC OF KENTUCKY TRUST

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

LEISURE PARK VENTURE LIMITED PARTNERSHIP

By:		CCC Leisure Park Corporation,
		its General Partner

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

CCDE SENIOR LIVING LLC

By:	/s/ David J. Hegarty
	David J. Hegarty
	President

CCOP SENIOR LIVING LLC

By:	/s/ David J. Hegarty
	David J. Hegarty
	President

CCC PUEBLO NORTE TRUST

By:	/s/ David J. Hegarty
	David J. Hegarty
	President

CCC RETIREMENT COMMUNITIES II, L.P.

By:		Crestline Ventures LLC,
		its General Partner

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

CCC INVESTMENTS I, L.L.C.

By:	/s/ David J. Hegarty
	David J. Hegarty
	President

CCC FINANCING I TRUST

By:	/s/ David J. Hegarty
	David J. Hegarty
	President

CCC FINANCING LIMITED, L.P.

By:		CCC Retirement Trust,
		its General Partner

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

SNH SOMERFORD PROPERTIES TRUST

By:	/s/ David J. Hegarty
	David J. Hegarty
	President

HRES1 PROPERTIES TRUST

By:	/s/ David J. Hegarty
	David J. Hegarty
	President

		TENANT:

		FIVE STAR QUALITY CARE TRUST

		By:	/s/ Bruce J. Mackey Jr.
			Bruce J. Mackey Jr.
			President

		FS TENANT HOLDING COMPANY TRUST

		By:	/s/ Bruce J. Mackey Jr.
			Bruce J. Mackey Jr.
			President

		FS COMMONWEALTH LLC

		By:	/s/ Bruce J. Mackey Jr.
			Bruce J. Mackey Jr.
			President

		FS PATRIOT LLC

		By:	/s/ Bruce J. Mackey Jr.
			Bruce J. Mackey Jr.
			President

SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-1	Ashton Gables in Riverchase 2184 Parkway Lake Drive Birmingham, AL 35244	2009	N/A		08/01/2008	8	%

A-2	Lakeview Estates 2634 Valleydale Road Birmingham, AL 35244	2009	N/A		08/01/2008	8	%

A-3	Forum at Pueblo Norte 7090 East Mescal Street Scottsdale, AZ 85254	2005	$	11,470,312	01/11/2002	10	%

A-4	La Salette Health and Rehabilitation Center 537 East Fulton Street Stockton, CA 95204	2005	$	7,726,002	12/31/2001	10	%

A-5	Thousand Oaks Health Care Center 93 West Avenida de Los Arboles Thousand Oaks, CA 91360	2005	$	8,087,430	12/31/2001	10	%

A-6	Skyline Ridge Nursing & Rehabilitation Center 515 Fairview Avenue Canon City, CO 81212	2005	$	4,104,100	12/31/2001	10	%

A-7	Springs Village Care Center 110 West Van Buren Street Colorado Springs, CO 80907	2005	$	4,799,252	12/31/2001	10	%

A-8	Willow Tree Care Center 2050 South Main Street Delta, CO 81416	2005	$	4,310,982	12/31/2001	10	%

A-9	Cedars Healthcare Center 1599 Ingalls Street Lakewood, CO 80214	2005	$	6,964,007	12/31/2001	10	%

A-10	Millcroft 255 Possum Park Road Newark, DE 19711	2005	$	11,410,121	01/11/2002	10	%

A-11	Forwood Manor 1912 Marsh Road Wilmington, DE 19810	2005	$	13,446,434	01/11/2002	10	%

A-12	Foulk Manor South 407 Foulk Road Wilmington, DE 19803	2005	$	4,430,251	01/11/2002	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-13	Shipley Manor 2723 Shipley Road Wilmington, DE 19810	2005	$	9,333,057	01/11/2002	10	%

A-14	Forum at Deer Creek 3001 Deer Creek Country Club Blvd. Deerfield Beach, FL 33442	2005	$	12,323,581	01/11/2002	10	%

A-15	Springwood Court 12780 Kenwood Lane Fort Myers, FL 33907	2005	$	2,577,612	01/11/2002	10	%

A-16	Fountainview 111 Executive Center Drive West Palm Beach, FL 33401	2005	$	7,920,202	01/11/2002	10	%

A-17	Morningside of Athens 1291 Cedar Shoals Drive Athens, GA 30605	2006	$	1,560,026	11/19/2004	9	%

A-18	Marsh View Senior Living 7410 Skidaway Road Savannah, GA 31406	2007	$	2,108,378	11/01/2006	8.25	%

A-19	Pacific Place 20937 Kane Avenue Pacific Junction, IA 51561	2005	$	848,447	12/31/2001	10	%

A-20	West Bridge Care & Rehabilitation 1015 West Summit Street Winterset, IA 50273	2005	$	3,157,928	12/31/2001	10	%

A-21	Meadowood Retirement Community 2455 Tamarack Trail Bloomington, IN 47408	2009	N/A		11/01/2008	8	%

A-22	Woodhaven Care Center 510 West 7 th Street Ellinwood, KS 67526	2005	$	2,704,674	12/31/2001	10	%

A-23	Lafayette at Country Place 690 Mason Headley Road Lexington, KY 40504	2005	$	4,928,052	01/11/2002	10	%

A-24	Lexington Country Place 700 Mason Headley Road Lexington, KY 40504	2005	$	8,893,947	01/11/2002	10	%

A-25	Braintree Rehabilitation Hospital 250 Pond Street Braintree, MA 02184	N/A	N/A		10/01/2006	9	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-26	New England Rehabilitation Hospital 2 Rehabilitation Way Woburn, MA 01801	N/A	N/A		10/01/2006	9	%

A-27	HeartFields at Bowie 7600 Laurel Bowie Road Bowie, MD 20715	2005	$	2,436,102	10/25/2002	10	%

A-28	HeartFields at Frederick 1820 Latham Drive Frederick, MD 21701	2005	$	2,173,971	10/25/2002	10	%

A-29	Intentionally deleted.	N/A	N/A		N/A	N/A

A-30	Intentionally deleted.	N/A	N/A		N/A	N/A

A-31	Morys Haven 1112 15 th Street Columbus, NE 68601	2005	$	2,440,714	12/31/2001	10	%

A-32	Intentionally deleted.	N/A	N/A		N/A	N/A

A-33	Wedgewood Care Center 800 Stoeger Drive Grand Island, NE 68803	2005	$	4,000,565	12/31/2001	10	%

A-34	Intentionally deleted.	N/A	N/A		N/A	N/A

A-35	Crestview Healthcare Center 1100 West First Street Milford, NE 68405	2005	$	2,284,407	12/31/2001	10	%

A-36	Utica Community Care Center 1350 Centennial Avenue Utica, NE 68456	2005	$	1,950,325	12/31/2001	10	%

A-37	Leisure Park 1400 Route 70 Lakewood, NJ 08701	2005	$	14,273,446	01/07/2002	10	%

A-38	Franciscan Manor 71 Darlington Road Patterson Township, Beaver Falls, PA 15010	2006	$	4,151,818	10/31/2005	9	%

A-39	Mount Vernon of Elizabeth 145 Broadlawn Drive Elizabeth, PA 15037	2006	$	2,332,574	10/31/2005	9	%

A-40	Overlook Green 5250 Meadowgreen Drive Whitehall, PA 15236	2006	$	3,878,300	10/31/2005	9	%

A-41	Myrtle Beach Manor 9547 Highway 17 North Myrtle Beach, SC 29572	2005	$	6,138,714	01/11/2002	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate

A-42	Morningside of Anderson 1304 McLees Road Anderson, SC 29621	2006	$	1,381,775	11/19/2004	9	%

A-43	Heritage Place at Boerne 120 Crosspoint Drive Boerne, TX 78006	2009	N/A		02/07/2008	8	%

A-44	Forum at Park Lane 7831 Park Lane Dallas, TX 75225	2005	$	13,620,931	01/11/2002	10	%

A-45	Heritage Place at Fredericksburg 96 Frederick Road Fredericksburg, TX 78624	2009	N/A		02/07/2008	8	%

A-46	Greentree Health & Rehabilitation Center 70 Greentree Road Clintonville, WI 54929	2005	$	3,038,761	12/31/2001	10	%

A-47	Pine Manor Health Care Center Village of Embarrass 1625 East Main Street Clintonville, WI 54929	2005	$	4,337,113	12/31/2001	10	%

A-48	ManorPointe - Oak Creek Independent Senior Apartments and Meadowmere - Mitchell Manor - Oak Creek 700 East Stonegate Drive and 701 East Puetz Road Oak Creek, WI 53154	2009	N/A		01/04/2008	8	%

A-49	River Hills West Healthcare Center 321 Riverside Drive Pewaukee, WI 53072	2005	$	9,211,765	12/31/2001	10	%

A-50	The Virginia Health & Rehabilitation Center 1451 Cleveland Avenue Waukesha, WI 53186	2005	$	6,128,045	12/31/2001	10	%

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Bruce J. Mackey Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Five Star Quality Care, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2010	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Paul V. Hoagland, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Five Star Quality Care, Inc.;

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2010	/s/ Paul V. Hoagland
	Paul V. Hoagland
	Treasurer and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SEC. 1350

(Section 906 of the Sarbanes — Oxley Act of 2002)

In connection with the filing by Five Star Quality Care, Inc. (the “Company”) of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President and Chief Executive Officer

	/s/ Paul V. Hoagland
	Paul V. Hoagland
	Treasurer and Chief Financial Officer

Date: October 28, 2010

Exhibit 99.1

CONFIRMATION OF GUARANTEES AND

CONFIRMATION OF AND AMENDMENT TO SECURITY AGREEMENTS

THIS CONFIRMATION OF GUARANTEES AND CONFIRMATION OF AND AMENDMENT TO SECURITY AGREEMENTS (this “ Confirmation ”) is made and entered into as of August 1, 2010 by and among FIVE STAR QUALITY CARE, INC. , a Maryland corporation (“ Guarantor ”), FIVE STAR QUALITY CARE TRUST , a Maryland business trust (“ Tenant ”), each of the parties identified on the signature page hereof as a subtenant (jointly and severally, “ Subtenants ”) and each of the parties identified on the signature page hereof as a landlord (collectively, “ Landlord ”).

W I T N E S S E T H :

WHEREAS , pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 4, 2009 (as the same may be amended, restated or otherwise modified from time to time, “ Amended Lease No. 1 ”), Landlord leases to Tenant, and Tenant leases from Landlord, certain property, all as more particularly described in Amended Lease No. 1; and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 1 are guaranteed by that certain Amended and Restated Guaranty Agreement (Lease No. 1), dated as of August 4, 2009, made by Guarantor for the benefit of Landlord (as the same may be amended, restated or otherwise modified from time to time, the “ Parent Guarantee ”) and that certain Amended and Restated Subtenant Guaranty Agreement (Lease No. 1), dated as of August 4, 2009, made by Subtenants for the benefit of Landlord (as the same may be amended, restated or otherwise modified from time to time, the “ Subtenant Guarantee ”; and, together with the Parent Guarantee, collectively, the “ Guarantees ”); and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 1 are further secured by (i) that certain Amended and Restated Subtenant Security Agreement (Lease No. 1), dated as of August 4, 2009, by and among Subtenants and Landlords (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “ Subtenant Security Agreement ”); and (ii) that certain Amended and Restated Security Agreement (Lease No. 1), dated as of August 4, 2009, by and among Tenant and Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “ Tenant Security Agreement ”;

and together with the Subtenant Security Agreement, collectively, the “ Security Agreements ”); and

WHEREAS , pursuant to that certain Partial Termination of and Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of the date hereof (the “ Fourth Amendment ”), Amended Lease No. 1 is being terminated with respect to a property known as the Rose Brook Care Center, 106 Fifth Street, Edgar, Nebraska, 68935 (the “ Rose Brook Property ”), all as more particularly described in the Fourth Amendment; and

WHEREAS , in connection with the partial termination of Amended Lease No. 1 with respect to the Rose Brook Property pursuant to the Fourth Amendment, Five Star Quality Care Trust and Five Star Quality Care-NE, Inc. are entering into that certain Amended and Restated Sublease Agreement to reflect (among other things) the termination of their sublease with respect to the Rose Brook Property; and

WHEREAS, in connection with the foregoing, and as a condition precedent to the execution of the Fourth Amendment by Landlord, Landlord has required that the parties hereto confirm that the Guarantees and the Security Agreements remain in full force and effect and apply to Amended Lease No. 1 as amended by the Fourth Amendment;

NOW, THEREFORE , in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree, effective as of the date hereof, as follows:

1. Amendment of Subtenant Security Agreement . The Subtenant Security Agreement is hereby amended by (a) replacing Exhibit A attached thereto with Schedule 1 attached hereto; and (b) replacing Schedule 2 attached thereto with Schedule 2 attached hereto.

2. Amendment of Tenant Security Agreement . The Tenant Security Agreement is hereby amended by replacing Schedule 2 attached thereto with Schedule 3 attached hereto.

3. Confirmation of Guarantees and Security Agreements . Each of the parties to the Guarantees and the Security Agreements hereby confirms that all references in the Guarantees and the Security Agreements to “Amended Lease No. 1” shall refer to Amended Lease No. 1 as amended by the Fourth Amendment, and

the Guarantees and the Security Agreements, as amended and confirmed hereby, are hereby ratified and confirmed in all respects.

4. No Impairment, Etc. The obligations, covenants, agreements and duties of the parties under the Guarantees and Security Agreements shall not be impaired in any manner by the execution and delivery of the Fourth Amendment, and in no event shall any ratification or confirmation of such Guarantees or such Security Agreements, or the obligations, covenants, agreements and the duties of the parties under the Guarantees or the Security Agreements, including, without limitation, this Confirmation, be required in connection with any such amendment, change or modification.

[Remainder of page left intentionally blank.]

[Signature pages follow.]

IN WITNESS WHEREOF , the parties hereto have caused this Confirmation to be duly executed, as a sealed instrument, as of the date first set forth above.

		GUARANTOR:

		FIVE STAR QUALITY CARE, INC.


		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer


		TENANT:

		FIVE STAR QUALITY CARE TRUST


		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer

-Signature Page to Confirmation of Guarantees-

		SUBTENANTS:

		ANNAPOLIS HERITAGE PARTNERS, LLC,
		COLUMBIA HERITAGE PARTNERS, LLC,
		ENCINITAS HERITAGE PARTNERS, LLC,
		FIVE STAR QUALITY CARE-AZ, LLC,
		FIVE STAR QUALITY CARE-CA, LLC,
		FIVE STAR QUALITY CARE-COLORADO, LLC,
		FIVE STAR QUALITY CARE-FL, LLC,
		FIVE STAR QUALITY CARE-GA, LLC,
		FIVE STAR QUALITY CARE-GHV, LLC,
		FIVE STAR QUALITY CARE-IA, INC.,
		FIVE STAR QUALITY CARE-IA, LLC,
		FIVE STAR QUALITY CARE-MN, LLC,
		FIVE STAR QUALITY CARE-MO, LLC,
		FIVE STAR QUALITY CARE-MS, LLC,
		FIVE STAR QUALITY CARE-NE, LLC,
		FIVE STAR QUALITY CARE-NE, INC.,
		FIVE STAR QUALITY CARE-NORTH
		CAROLINA, LLC,
		FIVE STAR QUALITY CARE-TX, LLC,
		FIVE STAR QUALITY CARE-VA, LLC,
		FIVE STAR QUALITY CARE-WI, LLC,
		FIVE STAR QUALITY CARE-WY, LLC,
		FREDERICK HERITAGE PARTNERS, LLC,
		HAGERSTOWN HERITAGE PARTNERS, LLC,
		MORNINGSIDE OF BELMONT, LLC,
		MORNINGSIDE OF GALLATIN, LLC ,
		NEWARK HERITAGE PARTNERS I, LLC,
		NEWARK HERITAGE PARTNERS II, LLC, and
		REDLANDS HERITAGE PARTNERS, LLC


		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer of each of the foregoing entities

-Signature Page to Confirmation of Guarantees-

FRESNO HERITAGE PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, and ROSEVILLE HERITAGE PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP

	By:	Hamilton Place, LLC,
		General Partner of each of the foregoing entities


		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer


MORNINGSIDE OF ANDERSON, L.P., MORNINGSIDE OF COLUMBUS, L.P., MORNINGSIDE OF DALTON, LIMITED PARTNERSHIP, MORNINGSIDE OF EVANS, LIMITED PARTNERSHIP, and MORNINGSIDE OF KENTUCKY, LIMITED PARTNERSHIP

	By:	LifeTrust America, Inc.,
		General Partner of each of the foregoing entities


		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer

-Signature Page to Confirmation of Guarantees-

		LANDLORD:

		SNH CHS PROPERTIES TRUST, SPTIHS PROPERTIES TRUST, SPTMNR PROPERTIES TRUST, SNH/LTA PROPERTIES TRUST, SNH/LTA PROPERTIES GA LLC, and SNH SOMERFORD PROPERTIES TRUST


		By:	/s/ David J. Hegarty
			David J. Hegarty
			President of each of the foregoing entities

-Signature Page to Confirmation of Guarantees-

SCHEDULE 1

EXHIBIT A

SUBLEASES

1. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-AZ, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

2. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-CA, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

3. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-Colorado, LLC, Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter

Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

4. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, Inc., a Delaware corporation, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

5. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WY, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

6. Sublease Agreement, dated June 23, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-MO, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

7. Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Columbus, L.P., a Delaware limited partnership, as subtenant, as amended by that

certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

8. Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Dalton, Limited Partnership, a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

9. Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Evans, Limited Partnership, a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

10. Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Gallatin, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

11. Sublease Agreement, dated October 31, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as

sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

12. Sublease Agreement, dated September 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-FL, LLC, a Delaware limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

13. Sublease Agreement, dated October 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-MS, LLC, a Maryland limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

14. Second Amended and Restated Sublease Agreement, dated November 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GA, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

15. Second Amended and Restated Sublease Agreement, dated November 6, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Morningside of Kentucky, Limited Partnership, a Delaware limited partnership, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain

Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

16. Amended and Restated Sublease Agreement, dated January 1, 2007, by and between Five Star Quality Care Trust, a Maryland business trust, and Morningside of Belmont, LLC, a Delaware limited liability company, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

17. Sublease Agreement, dated March 1, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-MN, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

18. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Annapolis Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

19. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Columbia Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that

certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

20. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Encinitas Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

21. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Frederick Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

22. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Fresno Heritage Partners, A California Limited Partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

23. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Hagerstown Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among

Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

24. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Newark Heritage Partners I, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

25. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Newark Heritage Partners II, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

26. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Redlands Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

27. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Roseville Heritage Partners, A California Limited Partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

28. Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-VA, LLC, a Delaware limited liability company, as subtenant.

29. Second Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WI, LLC, a Delaware limited liability company, as subtenant.

30. Amended and Restated Sublease Agreement, dated as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, LLC, as subtenant.

31. Sublease Agreement, dated as of November 17, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-North Carolina, LLC, a Maryland limited liability company, as subtenant.

32. Sublease Agreement, dated as of November 17, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Anderson, L.P., a Delaware limited partnership, as subtenant.

33. Sublease Agreement, dated as of November 17, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-TX, LLC, a Maryland limited liability company, as subtenant.

34. Sublease Agreement, dated as of December 10, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GA, LLC, a Delaware limited liability company, as subtenant.

35. Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, Inc., a Delaware corporation, as subtenant.

36. Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, LLC, a Delaware limited liability company, as subtenant.

SCHEDULE 2

SCHEDULE 2

The Facilities

State:	Facility:	Subtenant:

ARIZONA :	LA MESA HEALTHCARE CENTER 2470 S. Arizona Avenue Yuma, Arizona 85364	Five Star Quality Care-AZ, LLC

	SUNQUEST VILLAGE OF YUMA 265 E. 24 th Street Yuma, Arizona 85364	Five Star Quality Care-AZ, LLC

CALIFORNIA :	SOMERFORD PLACE - ENCINITAS 1350 S. El Camino Real Encinitas, California 92024	Encinitas Heritage Partners, LLC

	SOMERFORD PLACE - FRESNO 6075 N. Marks Avenue Fresno, California 93711	Fresno Heritage Partners, A California Limited Partnership

	LANCASTER HEALTHCARE CENTER 1642 West Avenue J Lancaster, CA 93534	Five Star Quality Care-CA, LLC

	LEISURE POINTE 1371 Parkside Drive San Bernardino, CA 92404	Five Star Quality Care-CA, LLC

	VAN NUYS HEALTH CARE CENTER 6835 Hazeltine Street Van Nuys, CA 91405	Five Star Quality Care-CA, LLC

	SOMERFORD PLACE - REDLANDS 1319 Brookside Avenue Redlands, California 92373	Redlands Heritage Partners, LLC

	SOMERFORD PLACE - ROSEVILLE 110 Sterling Court Roseville, California 95661	Roseville Heritage Partners, A California Limited Partnership

State:	Facility:	Subtenant:

COLORADO :	MANTEY HEIGHTS REHABILITATION & CARE CENTER 2825 Patterson Road Grand Junction, CO 81506	Five Star Quality Care-Colorado, LLC

	CHERRELYN HEALTHCARE CENTER 5555 South Elati Street Littleton, CO 80120	Five Star Quality Care-Colorado, LLC

DELAWARE :	SOMERFORD HOUSE AND SOMERFORD PLACE — NEWARK I & II 4175 Ogletown Road and 501 S. Harmony Road Newark, Delaware 19713	Newark Heritage Partners I, LLC and Newark Heritage Partners II, LLC

FLORIDA :	TUSCANY VILLA OF NAPLES (AKA BUENA VISTA) 8901 Tamiami Trail East Naples, Florida 34113	Five Star Quality Care-FL, LLC

GEORGIA :	COLLEGE PARK HEALTHCARE CENTER 1765 Temple Avenue College Park, GA 30337	Five Star Quality Care-GA, LLC

	EASTSIDE GARDENS 2078 Scenic Highway North Snellville, Georgia 30078	Five Star Quality Care-GA, LLC

	MORNINGSIDE OF COLUMBUS 7100 South Stadium Drive Columbus, GA 31909	Morningside of Columbus, L.P.

	MORNINGSIDE OF DALTON 2470 Dug Gap Road Dalton, GA 30720	Morningside of Dalton, Limited Partnership

	MORNINGSIDE OF EVANS 353 N. Belair Road Evans, GA 30809	Morningside of Evans, Limited Partnership

IOWA :	UNION PARK HEALTH SERVICES 2401 E. 8 th Street Des Moines, Iowa 50316	Five Star Quality Care-IA, Inc.

State:	Facility:	Subtenant:

	PARK PLACE 114 East Green Street Glenwood, IA 51534	Five Star Quality Care-IA, Inc.

	PRAIRIE RIDGE CARE & REHABILITATION 608 Prairie Street Mediapolis, IA 52637	Five Star Quality Care-IA, LLC

KENTUCKY :	ASHWOOD PLACE 102 Leonardwood Frankfort, KY 40601	Morningside of Kentucky, Limited Partnership

MARYLAND :	SOMERFORD PLACE — ANNAPOLIS 2717 Riva Road Annapolis, Maryland 21401	Annapolis Heritage Partners, LLC

	SOMERFORD PLACE — COLUMBIA 8220 Snowden River Parkway Columbia, Maryland 21405	Columbia Heritage Partners, LLC

	SOMERFORD PLACE — FREDERICK 2100 Whittier Drive Frederick, Maryland 21702	Frederick Heritage Partners, LLC

	SOMERFORD PLACE — HAGERSTOWN 10114 and 10116 Sharpsburg Pike Hagerstown, Maryland 21740	Hagerstown Heritage Partners, LLC

MINNESOTA :	WELLSTEAD OF ROGERS 20500 and 20600 S. Diamond Lake Road Rogers, MN 55374	Five Star Quality Care-MN, LLC

MISSISSIPPI :	HERMITAGE GARDENS OF OXFORD 1488 Belk Boulevard Oxford, MS 38655	Five Star Quality Care-MS, LLC

	HERMITAGE GARDENS OF SOUTHAVEN 108 Clarington Drive Southaven, MS 38671	Five Star Quality Care-MS, LLC

State:	Facility:	Subtenant:

MISSOURI :	ARBOR VIEW HEALTHCARE & REHABILITATION 1317 N. 36 th Street St. Joseph, Missouri 64506	Five Star Quality Care-MO, LLC

NEBRASKA :	ASHLAND CARE CENTER 1700 Furnace Street Ashland, NE 68003	Five Star Quality Care-NE, LLC

	BLUE HILL CARE CENTER 414 North Wilson Street Blue Hill, NE 68930	Five Star Quality Care-NE, LLC

	CENTRAL CITY CARE CENTER 2720 South 17 th Avenue Central City, NE 68462	Five Star Quality Care-NE, Inc.

	GRETNA COMMUNITY CARE CENTER 700 South Highway 6 Gretna, NE 68028	Five Star Quality Care-NE, LLC

	SUTHERLAND CARE CENTER 333 Maple Street Sutherland, NE 69165	Five Star Quality Care-NE, LLC

	WAVERLY CARE CENTER 11041 North 137 th Street Waverly, NE 68462	Five Star Quality Care-NE, LLC

NORTH CAROLINA :	HAVEN IN HIGHLAND CREEK 5920 McChesney Drive Charlotte, NC 28269	Five Star Quality Care-North Carolina, LLC

	LAURELS IN HIGHLAND CREEK 6101 Clark Creek Parkway Charlotte, NC 28269	Five Star Quality Care-North Carolina, LLC

	HAVEN IN THE VILLAGE AT CAROLINA PLACE 13150 Dorman Road Pineville, NC 28134	Five Star Quality Care-North Carolina, LLC

State:	Facility:	Subtenant:

	LAURELS IN THE VILLAGE AT CAROLINA PLACE 13180 Dorman Road Pineville, NC 28134	Five Star Quality Care-North Carolina, LLC

PENNSYLVANIA :	ROLLING HILLS MANOR 600 Newport Drive Pittsburgh, Pennsylvania 15234	Five Star Quality Care-GHV, LLC

	RIDGEPOINTE ASSISTED LIVING 5301 Brownsville Road Pittsburgh, PA 15236	Five Star Quality Care-GHV, LLC

	MOUNT VERNON OF SOUTH PARK 1400 Riggs Road South Park, PA 15129	Five Star Quality Care-GHV, LLC

SOUTH CAROLINA :	HAVEN IN THE SUMMIT 3 Summit Terrace Columbia, SC 29229	Morningside of Anderson, L.P.

	HAVEN IN THE VILLAGE AT CHANTICLEER 355 Berkmans Lane Greenville, SC 29605	Morningside of Anderson, L.P.

TENNESSEE :	MORNINGSIDE OF GALLATIN 1085 Hartsville Pike Gallatin, TN 37066	Morningside of Gallatin, LLC

	WALKING HORSE MEADOWS 207 Uffelman Drive Clarksville, TN 37043	Morningside of Belmont, LLC

	MORNINGSIDE OF BELMONT 1710 Magnolia Boulevard Nashville, TN 37212	Morningside of Belmont, LLC

TEXAS :	HAVEN IN STONE OAK 511 Knights Cross Drive San Antonio, TX 78258	Five Star Quality Care-TX, LLC

State:	Facility:	Subtenant:

	LAURELS IN STONE OAK 575 Knights Cross Drive San Antonio, TX 78258	Five Star Quality Care-TX, LLC

	HAVEN IN THE TEXAS HILL COUNTRY 747 Alpine Drive Kerrville, TX 78028	Five Star Quality Care-TX, LLC

VIRGINIA :	DOMINION VILLAGE AT CHESAPEAKE 2865 Forehand Drive Chesapeake, VA 23323	Five Star Quality Care-VA, LLC

	DOMINION VILLAGE AT WILLIAMSBURG 4132 Longhill Road Williamsburg, VA 23188	Five Star Quality Care-VA, LLC

	HEARTFIELDS AT RICHMOND 500 North Allen Avenue Richmond, VA 23220	Five Star Quality Care-VA, LLC

WISCONSIN :	BROOKFIELD REHAB & SPECIALTY (AKA) WOODLAND HEALTHCARE CENTER 18741 West Bluemound Road Brookfield, WI 53045	Five Star Quality Care-WI, LLC

	MEADOWMERE-SOUTHPORT ASSISTED LIVING 8350 and 8351 Sheridan Road Kenosha, WI 53143	Five Star Quality Care-WI, LLC

	MEADOWMERE-MADISON ASSISTED LIVING 5601 Burke Road Madison, WI 53718	Five Star Quality Care-WI, LLC

	SUNNY HILL HEALTH CARE CENTER 4325 Nakoma Road Madison, Wisconsin 53711	Five Star Quality Care-WI, LLC

State:	Facility:	Subtenant:

	MITCHELL MANOR SENIOR LIVING 5301 West Lincoln Avenue West Allis, WI 53219	Five Star Quality Care-WI, LLC

WYOMING :	LARAMIE CARE CENTER 503 South 18 th Street Laramie, WY 82070	Five Star Quality Care-WY, LLC

SCHEDULE 3

SCHEDULE 2

THE FACILITIES

ARIZONA:

LA MESA HEALTHCARE CENTER

2470 S. Arizona Avenue

Yuma, Arizona 85364

SUNQUEST VILLAGE OF YUMA

265 E. 24 th Street

Yuma, Arizona 85364

CALIFORNIA:

SOMERFORD PLACE - ENCINITAS

1350 S. El Camino Real

Encinitas, California 92024

SOMERFORD PLACE - FRESNO

6075 N. Marks Avenue

Fresno, California 93711

LANCASTER HEALTHCARE CENTER

1642 West Avenue J

Lancaster, California 93534

SOMERFORD PLACE - REDLANDS

1319 Brookside Avenue

Redlands, California 92373

SOMERFORD PLACE - ROSEVILLE

110 Sterling Court

Roseville, California 95661

LEISURE POINTE

1371 Parkside Drive

San Bernardino, California 92404

VAN NUYS HEALTH CARE CENTER

6835 Hazeltine Street

Van Nuys, California 91405

COLORADO:

MANTEY HEIGHTS REHABILITATION & CARE CENTER

2825 Patterson Road

Grand Junction, Colorado 81506

CHERRELYN HEALTHCARE CENTER

5555 South Elati Street

Littleton, Colorado 80120

DELAWARE :

SOMERFORD HOUSE AND SOMERFORD PLACE — NEWARK I & II

4175 Ogletown Road and 501 S. Harmony Road

Newark, Delaware 19713

FLORIDA :

TUSCANY VILLA OF NAPLES (AKA BUENA VISTA)

8901 Tamiami Trail East

Naples, Florida 34113

GEORGIA:

COLLEGE PARK HEALTHCARE CENTER

1765 Temple Avenue

College Park, Georgia 30337

EASTSIDE GARDENS

2078 Scenic Highway North

Snellville, Georgia 30078

MORNINGSIDE OF COLUMBUS

7100 South Stadium Drive

Columbus, Georgia 31909

MORNINGSIDE OF DALTON

2470 Dug Gap Road

Dalton, Georgia 30720

MORNINGSIDE OF EVANS

353 N. Belair Road

Evans, Georgia 30809

IOWA:

UNION PARK HEALTH SERVICES

2401 E. 8 th Street

Des Moines, Iowa 50316

PARK PLACE

114 East Green Street

Glenwood, Iowa 51534

PRAIRIE RIDGE CARE & REHABILITATION

608 Prairie Street

Mediapolis, Iowa 52637

KENTUCKY:

ASHWOOD PLACE

102 Leonardwood

Frankfort, Kentucky 40601

MARYLAND:

SOMERFORD PLACE — ANNAPOLIS

2717 Riva Road

Annapolis, Maryland 21401

SOMERFORD PLACE — COLUMBIA

8220 Snowden River Parkway

Columbia, Maryland 21405

SOMERFORD PLACE — FREDERICK

2100 Whittier Drive

Frederick, Maryland 21702

SOMERFORD PLACE — HAGERSTOWN

10114 and 10116 Sharpsburg Pike

Hagerstown, Maryland 21740

MINNESOTA:

WELLSTEAD OF ROGERS

20500 and 20600 S. Diamond Lake Road

Rogers, Minnesota 55374

MISSISSIPPI:

HERMITAGE GARDENS OF OXFORD

1488 Belk Boulevard

Oxford, Mississippi 38655

HERMITAGE GARDENS OF SOUTHAVEN

108 Clarington Drive

Southaven, Mississippi 38671

MISSOURI:

ARBOR VIEW HEALTHCARE & REHABILITATION

1317 N. 36 th Street

St. Joseph, Missouri 64506

NEBRASKA:

ASHLAND CARE CENTER

1700 Furnace Street

Ashland, Nebraska 68003

BLUE HILL CARE CENTER

414 North Wilson Street

Blue Hill, Nebraska 68930

CENTRAL CITY CARE CENTER

2720 South 17 th Avenue

Central City, Nebraska 68826

GRETNA COMMUNITY LIVING CENTER

700 South Highway 6

Gretna, Nebraska 68028

SUTHERLAND CARE CENTER

333 Maple Street

Sutherland, Nebraska 69165

WAVERLY CARE CENTER

11041 North 137 th Street

Waverly, Nebraska 68462

NORTH CAROLINA :

HAVEN IN HIGHLAND CREEK

5920 McChesney Drive

Charlotte, North Carolina 28269

LAURELS IN HIGHLAND CREEK

6101 Clark Creek Parkway

Charlotte, North Carolina 28269

HAVEN IN THE VILLAGE AT CAROLINA PLACE

13150 Dorman Road

Pineville, North Carolina 28134

LAURELS IN THE VILLAGE AT CAROLINA PLACE

13180 Dorman Road

Pineville, North Carolina 28134

PENNSYLVANIA :

ROLLING HILLS MANOR

600 Newport Drive

Pittsburgh, Pennsylvania 15234

RIDGEPOINTE ASSISTED LIVING

5301 Brownsville Road

Pittsburgh, Pennsylvania 15236

MOUNT VERNON OF SOUTH PARK

1400 Riggs Road

South Park, Pennsylvania 15129

SOUTH CAROLINA :

HAVEN IN THE SUMMIT

3 Summit Terrace

Columbia, South Carolina 29229

HAVEN IN THE VILLAGE AT CHANTICLEER

355 Berkmans Lane

Greenville, South Carolina 29605

TENNESSEE:

MORNINGSIDE OF GALLATIN

1085 Hartsville Pike

Gallatin, Tennessee 37066

WALKING HORSE MEADOWS

207 Uffelman Drive

Clarksville, Tennessee 37043

MORNINGSIDE OF BELMONT

1710 Magnolia Boulevard

Nashville, Tennessee 37212

TEXAS :

HAVEN IN STONE OAK

511 Knights Cross Drive

San Antonio, Texas 78258

LAURELS IN STONE OAK

575 Knights Cross Drive

San Antonio, Texas 78258

HAVEN IN THE TEXAS HILL COUNTRY

747 Alpine Drive

Kerrville, Texas 78028

VIRGINIA:

DOMINION VILLAGE OF CHESAPEAKE

2865 Forehand Drive

Chesapeake, Virginia 23323

DOMINION VILLAGE OF WILLIAMSBURG

4132 Longhill Road

Williamsburg, Virginia 23188

HEARTFIELDS AT RICHMOND

500 North Allen Avenue

Richmond, Virginia 23220

WISCONSIN:

BROOKFIELD REHAB & SPECIALTY (AKA) WOODLAND HEALTHCARE CENTER

18741 West Bluemound Road

Brookfield, Wisconsin 53045

MEADOWMERE-SOUTHPORT ASSISTED LIVING

8350 and 8351 Sheridan Road

Kenosha, Wisconsin 53143

MEADOWMERE-MADISON ASSISTED LIVING

5601 Burke Road

Madison, Wisconsin 53718

SUNNY HILL HEALTH CARE CENTER

4325 Nakoma Road

Madison, Wisconsin 53711

MITCHELL MANOR SENIOR LIVING

5301 West Lincoln Avenue

West Allis, Wisconsin 53219

WYOMING:

LARAMIE CARE CENTER

503 South 18 th Street

Laramie, Wyoming 82070

Exhibit 99.2

CONFIRMATION OF GUARANTEES AND

CONFIRMATION OF AND AMENDMENT TO SECURITY AGREEMENTS

THIS CONFIRMATION OF GUARANTEES AND CONFIRMATION OF AND AMENDMENT TO SECURITY AGREEMENTS (this “ Confirmation ”) is made and entered into as of August 1, 2010 by and among FIVE STAR QUALITY CARE, INC. , a Maryland corporation (“ Guarantor ”), each of the parties identified on the signature page hereof as a tenant (jointly and severally, “ Tenant ”), each of the parties identified on the signature page hereof as a subtenant (jointly and severally, “ Subtenants ”) and each of the parties identified on the signature page hereof as a landlord (collectively, “ Landlord ”).

W I T N E S S E T H :

WHEREAS , pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 4, 2009 (as the same may be amended, restated or otherwise modified from time to time, the “ Amended Lease No. 2 ”), Landlord leases to Tenant, and Tenant leases from Landlord, certain property, all as more particularly described in Amended Lease No. 2; and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 2 are guaranteed by that certain Amended and Restated Guaranty Agreement (Lease No. 2), dated as of August 4, 2009, made by Guarantor for the benefit of Landlord (as the same may be amended, restated or otherwise modified from time to time, the “ Guaranty ”) and that certain Amended and Restated Subtenant Guaranty Agreement (Lease No. 2), dated as of August 4, 2009, made by Subtenants for the benefit of Landlord (as the same may be amended, restated or otherwise modified from time to time, the “ Subtenant Guaranty ”; and, together with Guaranty, collectively, the “ Guaranty ”); and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 2 are further secured by (i) that certain Amended and Restated Subtenant Security Agreement (Lease No. 2), dated as of August 4, 2009, by and among Subtenants and Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “ Subtenant Security Agreement ”); and (ii) that certain Amended and Restated Security Agreement (Lease No. 2), dated as of August 4, 2009, by and among Tenant and Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “ Tenant Security Agreement ”; and together with the Subtenant Security Agreement, collectively, the “ Security Agreements ”); and

WHEREAS , pursuant to that certain Partial Termination of and Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of the date hereof (the “ Second Amendment ”), Amended Lease No. 2 is being partially terminated and amended to reflect the sale of the following properties: (i) the Ainsworth Care Center located at 143 North Fullerton, Ainsworth, Nebraska and more particularly described on Exhibit A-30 to Amended Lease No. 2 (the “ Ainsworth Property ”), (ii) the Exeter Care Center located at 425 South Empire Avenue, Exeter, Nebraska and more particularly described on Exhibit A-32 to Amended Lease No. 2 (the “ Exeter Property ”) and (iii) Logan Valley Manor located at 1035 Diamond Street, Lyons, Nebraska and more particularly described on Exhibit A-34 to Amended Lease No. 2 (the “ Logan Valley Manor Property ” and, together with the Ainsworth Property and the Exeter Property, collectively, the “ Nebraska Sale Properties ”)all as more particularly described in the Second Amendment; and

WHEREAS , in connection with the partial termination of Amended Lease No. 2 with respect to the Nebraska Properties pursuant to the Second Amendment, (i) Five Star Quality Care Trust and Five Star Quality Care-NE, Inc. are entering into that certain Amended and Restated Sublease Agreement to reflect (among other things) the termination of their sublease with respect to the Exeter Property and (ii) Five Star Quality Care Trust and Five Star Quality Care-NE, LLC are entering into that certain Amended and Restated Sublease Agreement to reflect the termination of their sublease with respect to the Ainsworth Property and the Logan Valley Manor Property; and

WHEREAS, in connection with the foregoing, and as a condition precedent to the execution of the Second Amendment by Landlord, Landlord has required that the parties hereto confirm that the Guarantees and the Security Agreements remain in full force and effect and apply to Amended Lease No. 2 as amended by the Second Amendment;

1. Amendment of Subtenant Security Agreement . The Subtenant Security Agreement is hereby amended by (a) replacing Exhibit A attached thereto with Exhibit A attached hereto; (b) replacing Schedule 1 attached thereto with Schedule 1 attached hereto; (c) and replacing Schedule 2 attached thereto with Schedule 2 attached hereto.

2. Amendment of Tenant Security Agreement . The Tenant Security Agreement is hereby amended by replacing Schedule 2 attached thereto with Schedule 3 attached hereto.

3. Confirmation of Guarantees and Security Agreements . Each of the parties to the Guarantees and the Security Agreements hereby confirms that all references in the Guarantees and the Security Agreements to “Amended Lease No. 2” shall refer to Amended Lease No. 2 as amended by the Second Amendment, and the Guarantees and the Security Agreements, as amended and confirmed hereby, are hereby ratified and confirmed in all respects.

4. No Impairment, Etc. The obligations, covenants, agreements and duties of the parties under the Guarantees and Security Agreements shall not be impaired in any manner by the execution and delivery of the Second Amendment, and in no event shall any ratification or confirmation of such Guarantees or such Security Agreements, or the obligations, covenants, agreements and the duties of the parties under the Guarantees or the Security Agreements, including, without limitation, this Confirmation, be required in connection with any such amendment, change or modification.

[Signatures on following pages.]

IN WITNESS WHEREOF , the parties hereto have caused this Confirmation to be duly executed as a sealed instrument as of the date first above written.

	GUARANTOR:

	FIVE STAR QUALITY CARE, INC.


	By:	/s/ Paul V. Hoagland
		Paul V. Hoagland
		Treasurer


	TENANT:

	FIVE STAR QUALITY CARE TRUST,
	FS TENANT HOLDING COMPANY TRUST,
	FS COMMONWEALTH LLC, and
	FS PATRIOT LLC


	By:	/s/ Paul V. Hoagland
		Paul V. Hoagland
		Treasurer of each of the foregoing entities

SUBTENANTS:

FIVE STAR QUALITY CARE-CA II, LLC,
FIVE STAR QUALITY CARE-COLORADO, LLC,
FIVE STAR QUALITY CARE-GA, LLC,
FIVE STAR QUALITY CARE-GHV, LLC,
FIVE STAR QUALITY CARE-IA, LLC,
FIVE STAR QUALITY CARE-IN, LLC,
FIVE STAR QUALITY CARE-KS, LLC,
FIVE STAR QUALITY CARE-MD, LLC,
FIVE STAR QUALITY CARE-MO, LLC,
FIVE STAR QUALITY CARE-NE, INC.,
FIVE STAR QUALITY CARE-NE, LLC,
FIVE STAR QUALITY CARE-TX, LLC,
FIVE STAR QUALITY CARE-WI, LLC,
FS LAFAYETTE TENANT TRUST,
FS LEISURE PARK TENANT TRUST,
FS LEXINGTON TENANT TRUST,
FS TENANT POOL I TRUST,
FS TENANT POOL II TRUST,
FS TENANT POOL III TRUST,
FS TENANT POOL IV TRUST, and
FSQC-AL, LLC


By:	/s/ Paul V. Hoagland
	Paul V. Hoagland
	Treasurer of each of the foregoing entities

MORNINGSIDE OF ANDERSON, L.P., and MORNINGSIDE OF ATHENS, LIMITED PARTNERSHIP

By:		LifeTrust America, Inc.,
		General Partner of each of the foregoing entities


		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer of both of the foregoing entities

LANDLORD:

CCC FINANCING I TRUST,
CCC INVESTMENTS I, L.L.C.,
CCC OF KENTUCKY TRUST,
CCC PUEBLO NORTE TRUST,
CCDE SENIOR LIVING LLC,
CCOP SENIOR LIVING LLC,
HRES1 PROPERTIES TRUST,
O.F.C. CORPORATION,
SNH CHS PROPERTIES TRUST,
SNH SOMERFORD PROPERTIES TRUST,
SNH/LTA PROPERTIES GA LLC,
SNH/LTA PROPERTIES TRUST,
SPTIHS PROPERTIES TRUST, and
SPTMNR PROPERTIES TRUST

By:	/s/ David J. Hegarty
	David J. Hegarty
	President of each of the foregoing entities

LEISURE PARK VENTURE LIMITED PARTNERSHIP

By:		CCC Leisure Park Corporation,
		its General Partner

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

CCC RETIREMENT COMMUNITIES II, L.P.

By:		Crestline Ventures LLC,
		its General Partner

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

CCC FINANCING LIMITED, L.P.

By:		CCC Retirement Trust,
		its General Partner

		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

EXHIBIT A

REPLACEMENT EXHIBIT A
FOR SUBTENANT SECURITY AGREEMENT

(See attached copy.)

EXHIBIT A

SUBLEASES

1. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-Colorado, LLC, Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

2. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-KS, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

3. Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust, and FS Leisure Park Tenant Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

4. Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust,

and FS Lafayette Tenant Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

5. Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust, and FS Lexington Tenant Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

6. Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust, and FS Tenant Pool IV Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

7. Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Anderson, L.P., a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

8. Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Athens, Limited Partnership, a Delaware limited partnership, as subtenant,

as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

9. Sublease Agreement, dated May 6, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-CA II, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

10. Sublease Agreement, dated October 31, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

11. Second Amended and Restated Sublease Agreement, dated November 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GA, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

12. Sublease Agreement, dated February 7, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as

sublandlord, and Five Star Quality Care-TX, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

13. Sublease Agreement, dated August 1, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and FSQC-AL, LLC, as subtenant, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

14. Sublease Agreement, dated November 1, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IN, LLC, as subtenant, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

15. Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-MD, LLC, a Delaware limited liability company, as subtenant.

16. Second Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WI, LLC, a Delaware limited liability company, as subtenant.

17. Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord and FS Tenant Pool I Trust, a Maryland business trust, as subtenant.

18. Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord, and FS Tenant Pool II Trust, a Maryland business trust, as subtenant.

19. Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord, and FS Tenant Pool III Trust, a Maryland business trust, as subtenant.

20. Amended and Restated Sublease Agreement, dated August 1, 2010, but effective as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, LLC, a Delaware limited liability company, as subtenant.

21. Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, Inc., a Delaware corporation, as subtenant.

22. Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, LLC, a Delaware limited liability company, as subtenant.

SCHEDULE 1

REPLACEMENT SCHEDULE 1
FOR SUBTENANT SECURITY AGREEMENT

(See attached copy.)

SCHEDULE 1

Subtenant Name, Organizational Structure & Corporate Identification Number:	Chief Executive Office & Principal Place of Business:	Other Names
Five Star Quality Care-CA II, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	None.

Five Star Quality Care-Colorado, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	SHOPCO-Colorado, LLC

Five Star Quality Care-GA, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	SHOPCO-GA, LLC

Five Star Quality Care-GHV, LLC, a Maryland limited liability company No.	400 Centre Street Newton, MA 02458	None.

Five Star Quality Care-IA, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	SHOPCO-IA, LLC

Five Star Quality Care-IN, LLC, a Maryland limited liability company No.	400 Centre Street Newton, MA 02458	None.

Five Star Quality Care-KS, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	SHOPCO-KS, LLC

Five Star Quality Care-MD, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	None.

Five Star Quality Care-NE, Inc., a Delaware corporation No.	400 Centre Street Newton, MA 02458	SHOPCO-NE, Inc.

Five Star Quality Care-NE, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	SHOPCO-NE, LLC

Five Star Quality Care-TX, LLC, a Maryland limited liability company No.	400 Centre Street Newton, MA 02458	None.

Five Star Quality Care-WI, LLC, a Delaware limited liability company No.	400 Centre Street Newton, MA 02458	SHOPCO-WI, LLC

FS Lafayette Tenant Trust, a Maryland business trust No: MD B06518989	400 Centre Street Newton, MA 02458	None.

FS Leisure Park Tenant Trust, a Maryland business trust No: MD B06547053	400 Centre Street Newton, MA 02458	None.

FS Lexington Tenant Trust, a Maryland business trust No: MD B06519029	400 Centre Street Newton, MA 02458	None.

FS Tenant Pool I Trust, a Maryland business trust No: MD B06519011	400 Centre Street Newton, MA 02458	None.

FS Tenant Pool II Trust, a Maryland business trust No: MD B06518146	400 Centre Street Newton, MA 02458	None.

FS Tenant Pool III Trust, a Maryland business trust No: MD B06519037	400 Centre Street Newton, MA 02458	None.

Subtenant Name, Organizational Structure & Corporate Identification Number:	Chief Executive Office & Principal Place of Business:	Other Names
FS Tenant Pool IV Trust, a Maryland business trust No: MD B06519045	400 Centre Street Newton, MA 02458	None.

FSQC-AL, LLC, a Maryland limited liability company No.	400 Centre Street Newton, MA 02458	None.

Morningside of Anderson, L.P., a Delaware limited partnership No.	400 Centre Street Newton, MA 02458	None.

Morningside of Athens, Limited Partnership, a Delaware limited partnership No.	400 Centre Street Newton, MA 02458	None.

SCHEDULE 2

REPLACEMENT SCHEDULE 2

FOR SUBTENANT SECURITY AGREEMENT

(See attached copy.)

SCHEDULE 2

The Facilities

State	Facility	Subtenant

ALABAMA :	ASHTON GABLES IN RIVERCHASE 2184 Parkway Lake Drive Birmingham, Alabama 35244	FSQC-AL, LLC

	LAKEVIEW ESTATES 2634 Valleydale Road Birmingham, Alabama 35244	FSQC-AL, LLC

ARIZONA :	THE FORUM AT PUEBLO NORTE 7090 East Mescal Street Scottsdale, AZ 85254	FS Tenant Pool II Trust

CALIFORNIA :	LA SALETTE HEALTH AND REHABILITATION CENTER 537 East Fulton Street Stockton, California 95204	Five Star Quality Care-CA II, LLC

	THOUSAND OAKS HEALTHCARE CENTER 93 W. Avenida de Los Arboles Thousand Oaks, California 91360	Five Star Quality Care-CA II, LLC

COLORADO :	SKYLINE RIDGE NURSING & REHABLITATION CENTER 515 Fairview Avenue Canon City, Colorado 81212	Five Star Quality Care-Colorado, LLC

	SPRINGS VILLAGE CARE CENTER 110 West Van Buren Street Colorado Springs, Colorado 80907	Five Star Quality Care-Colorado, LLC

	WILLOW TREE CARE CENTER 2050 South Main Street Delta, Colorado 81416	Five Star Quality Care-Colorado, LLC

	CEDARS HEALTHCARE CENTER 1599 Ingalls Street Lakewood, Colorado 80214	Five Star Quality Care-Colorado, LLC

State	Facility	Subtenant

DELAWARE :	MILLCROFT 225 Possum Park Road Newark, Delaware 19711	FS Tenant Pool I Trust

	FORWOOD MANOR 1912 Marsh Road Wilmington, Delaware 19810	FS Tenant Pool II Trust

	FOULK MANOR SOUTH 407 Foulk Road Wilmington, Delaware 19803	FS Tenant Pool IV Trust

	SHIPLEY MANOR 2733 Shipley Road Wilmington, DE 19810	FS Tenant Pool I Trust

FLORIDA :	FORUM AT DEER CREEK 3001 Deer Creek Country Club Boulevard Deerfield Beach, Florida 33442	FS Tenant Pool III Trust

	SPRINGWOOD COURT 12780 Kenwood Lane Fort Myers, Florida 33907	FS Tenant Pool IV Trust

	FOUNTAINVIEW 111 Executive Center Drive West Palm Beach, Florida 33401	FS Tenant Pool II Trust

GEORGIA :	MORNINGSIDE OF ATHENS 1291 Cedar Shoals Drive Athens, Georgia 30605	Morningside of Athens, Limited Partnership

	SENIOR LIVING OF MARSH VIEW 7410 Skidway Road Savannah, Georgia 31406	Five Star Quality Care-GA, LLC

INDIANA :	MEADOWOOD RETIREMENT COMMUNITY 2455 Tamarack Trail Bloomington, Indiana 47408	Five Star Quality Care-IN, LLC

State	Facility	Subtenant

IOWA :	PACIFIC PLACE 20937 Kane Avenue Pacific Junction, Iowa 51561	Five Star Quality Care-IA, LLC

	WEST BRIDGE CARE & REHABILITATION 1015 West Summit Street Winterset, Iowa 50273	Five Star Quality Care-IA, LLC

KANSAS :	WOODHAVEN CARE CENTER 510 W. 7 th Street Ellinwood, Kansas 67526	Five Star Quality Care-KS, LLC

KENTUCKY :	LAFAYETTE AT COUNTRY PLACE 690 Mason Headley Road Lexington, Kentucky 40504	FS Lafayette Tenant Trust

	LEXINGTON AT COUNTRY PLACE 700 Mason Headley Road Lexington, Kentucky 40504	FS Lexington Tenant Trust

MARYLAND :	HEARTFIELDS AT BOWIE 7600 Laurel Bowie Road Bowie, Maryland 20715	Five Star Quality Care-MD, LLC

	HEARTFIELDS AT FREDERICK 1820 Latham Drive Frederick, Maryland 21701	Five Star Quality Care-MD, LLC

NEBRASKA :	MORYS HAVEN 1112 15 th Street Columbus, Nebraska 68601	Five Star Quality Care-NE, Inc.

	WEDGEWOOD CARE CENTER 800 Stoeger Drive Grand Island, Nebraska 68803	Five Star Quality Care-NE, LLC

	CRESTVIEW HEALTH CARE CENTER 1100 West First Street Milford, Nebraska 68405	Five Star Quality Care-NE, LLC

	UTICA COMMUNITY CARE CENTER 1350 Centennial Avenue Utica, Nebraska 68456	Five Star Quality Care-NE, Inc.

State	Facility	Subtenant

NEW JERSEY :	LEISURE PARK 1400 Route 70 Lakewood, New Jersey 08701	FS Leisure Park Tenant Trust

PENNSYLVANIA :	FRANCISCAN MANOR 71 Darlington Road Patterson Township, Beaver Falls, Pennsylvania 15010	Five Star Quality Care-GHV, LLC

	MOUNT VERNON OF ELIZABETH 145 Broadlawn Drive Elizabeth, Pennsylvania 15037	Five Star Quality Care-GHV, LLC

	OVERLOOK GREEN 5250 Meadowgreen Drive Whitehall, Pennsylvania 15236	Five Star Quality Care-GHV, LLC

SOUTH CAROLINA :	MORNINGSIDE OF ANDERSON 1304 McLees Road Anderson, South Carolina 29621	Morningside of Anderson, L.P.

	MYRTLE BEACH MANOR 9547 Highway 17 North Myrtle Beach, South Carolina 29572	FS Tenant Pool I Trust

TEXAS :	HERITAGE PLACE AT BOERNE 120 Crosspoint Drive Boerne, Texas 78006	Five Star Quality Care-TX, LLC

	FORUM AT PARK LANE 7831 Park Lane Dallas, Texas 75225	FS Tenant Pool III Trust

	HERITAGE PLACE AT FREDERICKSBURG 96 Frederick Road Fredericksburg, Texas 78624	Five Star Quality Care-TX, LLC

State	Facility	Subtenant

WISCONSIN :	GREENTREE HEALTH & REHABILITATION CENTER 70 Greentree Road Clintonville, Wisconsin 54929	Five Star Quality Care-WI, LLC

	PINE MANOR HEALTH CARE CENTER Village of Embarrass 1625 East Main Street Clintonville, Wisconsin 54929	Five Star Quality Care-WI, LLC

	MANORPOINTE-OAK CREEK INDEPENDENT SENIOR APARTMENTS AND MEADOWMERE/MITCHELL MANOR-OAK CREEK ASSISTED LIVING 700 East Stonegate Drive and 701 East Peutz Road Oak Creek, Wisconsin 53154	Five Star Quality Care-WI, LLC

	RIVER HILLS WEST HEALTHCARE CENTER 321 Riverside Drive Pewaukee, Wisconsin 53072	Five Star Quality Care-WI, LLC

	THE VIRGINIA HEALTH & REHABILITATION CENTER 1451 Cleveland Avenue Waukesha, Wisconsin 53186	Five Star Quality Care-WI, LLC

SCHEDULE 3

REPLACEMENT SCHEDULE 2
FOR TENANT SECURITY AGREEMENT

(See attached copy.)

SCHEDULE 2

THE FACILITIES

ALABAMA :

ASHTON GABLES IN RIVERCHASE

2184 Parkway Lake Drive

Birmingham, Alabama 35244

LAKEVIEW ESTATES

2634 Valleydale Road

Birmingham, Alabama 35244

ARIZONA :

THE FORUM AT PUEBLO NORTE

7090 East Mescal Street

Scottsdale, Arizona 85254

CALIFORNIA :

LA SALETTE HEALTH AND REHABILITATION CENTER

537 East Fulton Street

Stockton, California 95204

THOUSAND OAKS HEALTHCARE CENTER

93 W. Avenida de Los Arboles

Thousand Oaks, California 91360

COLORADO :

SKYLINE RIDGE NURSING & REHABLITATION CENTER

515 Fairview Avenue

Canon City, Colorado 81212

SPRINGS VILLAGE CARE CENTER

110 West Van Buren Street

Colorado Springs, Colorado 80907

WILLOW TREE CARE CENTER

2050 South Main Street

Delta, Colorado 81416

CEDARS HEALTHCARE CENTER

1599 Ingalls Street

Lakewood, Colorado 80214

DELAWARE :

MILLCROFT

255 Possum Park Road

Newark, Delaware 19711

FORWOOD MANOR

1912 Marsh Road

Wilmington, Delaware 19810

FOULK MANOR SOUTH

407 Foulk Road

Wilmington, Delaware 19803

SHIPLEY MANOR

2723 Shipley Road

Wilmington, Delaware 19810

FLORIDA :

FORUM AT DEER CREEK

3001 Deer Creek Country Club Boulevard

Deerfield Beach, Florida 33442

SPRINGWOOD COURT

12780 Kenwood Lane

Fort Myers, Florida 33907

FOUNTAINVIEW

111 Executive Center Drive

West Palm Beach, Florida 33401

GEORGIA :

MORNINGSIDE OF ATHENS

1291 Cedar Shoals Drive

Athens, Georgia 30605

SENIOR LIVING OF MARSH VIEW

7410 Skidway Road

Savannah, Georgia 31406

INDIANA :

MEADOWOOD RETIREMENT COMMUNITY

2455 Tamarack Trail

Bloomington, Indiana 47408

IOWA :

PACIFIC PLACE

20937 Kane Avenue

Pacific Junction, Iowa 51561

WEST BRIDGE CARE & REHABILITATION

1015 West Summit Street

Winterset, Iowa 50273

KANSAS :

WOODHAVEN CARE CENTER

510 W. 7 th Street

Ellinwood, Kansas 67526

KENTUCKY :

LAFAYETTE AT COUNTRY PLACE

690 Mason Headley Road

Lexington, Kentucky 40504

LEXINGTON AT COUNTRY PLACE

700 Mason Headley Road

Lexington, Kentucky 40504

MARYLAND :

HEARTFIELDS AT BOWIE

7600 Laurel Bowie Road

Bowie, Maryland 20715

HEARTFIELDS AT FREDERICK

1820 Latham Drive

Frederick, Maryland 21701

MASSACHUSETTS :

BRAINTREE REHABILITATION HOSPITAL

250 Pond Street

Braintree, Massachusetts 02184

NEW ENGLAND REHABILITATION HOSPITAL

2 Rehabilitation Way

Woburn, Massachusetts 01801

NEBRASKA :

MORYS HAVEN

1112 15 th Street

Columbus, Nebraska 68601

WEDGEWOOD CARE CENTER

800 Stoeger Drive

Grand Island, Nebraska 68803

CRESTVIEW HEALTH CARE CENTER

1100 West First Street

Milford, Nebraska 68405

UTICA COMMUNITY CARE CENTER

1350 Centennial Avenue

Utica, Nebraska 68456

NEW JERSEY :

LEISURE PARK

1400 Route 70

Lakewood, New Jersey 08701

PENNSYLVANIA :

FRANCISCAN MANOR

71 Darlington Road

Patterson Township, Beaver Falls, Pennsylvania 15010

MOUNT VERNON OF ELIZABETH

145 Broadlawn Drive

Elizabeth, Pennsylvania 15037

OVERLOOK GREEN

5250 Meadowgreen Drive

Whitehall, Pennsylvania 15236

SOUTH CAROLINA :

MORNINGSIDE OF ANDERSON

1304 McLees Road

Anderson, South Carolina 29621

MYRTLE BEACH MANOR

9547 Highway 17 North

Myrtle Beach, South Carolina 29572

TEXAS :

HERITAGE PLACE AT BOERNE

120 Crosspoint Drive

Boerne, Texas 78006

FORUM AT PARK LANE

7831 Park Lane

Dallas, Texas 75225

HERITAGE PLACE AT FREDERICKSBURG

96 Frederick Road

Fredericksburg, Texas 78624

WISCONSIN :

GREENTREE HEALTH & REHABILITATION CENTER

70 Greentree Road

Clintonville, Wisconsin 54929

PINE MANOR HEALTH CARE CENTER

Village of Embarrass

1625 East Main Street

Clintonville, Wisconsin 54929

MANORPOINTE-OAK CREEK INDEPENDENT SENIOR APARTMENTS AND MEADOWMERE/MITCHELL MANOR-OAK CREEK ASSISTED LIVING

700 East Stonegate Drive and 701 East Peutz Road

Oak Creek, Wisconsin 53154

RIVER HILLS WEST HEALTHCARE CENTER

321 Riverside Drive

Pewaukee, Wisconsin 53072

THE VIRGINIA HEALTH & REHABILITATION CENTER

1451 Cleveland Avenue

Waukesha, Wisconsin 53186

Exhibit 99.3

AMENDMENT TO SUBTENANT SECURITY AGREEMENT

THIS AMENDMENT TO SECURITY AGREEMENT (this “ Amendment ”) is made as of August 1, 2010 among (i) each of the parties identified on the signature page hereof as a subtenant (collectively, the “ Subtenants ”), and (ii) each of the parties identified on the signature page hereof as a landlord (collectively, the “ Landlord ”).

W I T N E S S E T H :

WHEREAS , pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of August 4, 2009 (“ Amended Lease No. 4 ”), the Landlord leases to Five Star Quality Care Trust, a Maryland business trust, Five Star Quality Care – NS Tenant , LLC, a Maryland limited liability company, FS Tenant Holding Company Trust, a Maryland business trust (the “ Tenant ”), and the Tenant leases from the Landlord, certain property, all as more particularly described in Amended Lease No. 4;

WHEREAS, Five Star Quality Care Trust and Five Star Quality Care-NE, LLC, a Delaware limited liability company (the “ NE Subtenant ”), are parties to that certain Second Amended and Restated Sublease Agreement, dated as of February 27, 2008 ( as the same may be amended, restated or otherwise modified from time to time, the “ Existing NE Sublease ”) under which Five Star Quality Care Trust subleases to the NE Subtenant certain properties which it leases from Landlord pursuant to Amended Lease No. 4 (the “ Subleased Properties ”) among other properties;

WHEREAS, Five Star Quality Care Trust and the NE Subtenant intend to amend and restate the Existing NE Sublease with respect to the Subleased Properties ( as the same may be amended, restated or otherwise modified from time to time, the “ NE Sublease ”); and

WHEREAS, in connection with the execution of the NE Sublease, and in order to accomplish the foregoing, the parties hereto wish to amend the Amended and Restated Subtenant Security Agreement (Lease No. 4), dated as of August 4, 2009, by and among the Subtenants and the Landlords (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “ Subtenant Security Agreement ”) all subject to and upon the terms and conditions herein set forth;

NOW, THEREFORE , in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and

legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree, effective as of the date hereof, as follows:

1. Amendment of Subtenant Security Agreement . The Subtenant Security Agreement is hereby amended by (i) replacing Exhibit A attached thereto with Schedule 1 attached hereto.

2. No Impairment, Etc. This Amendment contains the entire agreement of the parties hereto as to the subject matters contained herein. Except as expressly amended hereby, the Subtenant Security Agreement remains in full force and effect in accordance with its terms.

[Signatures on following pages.]

IN WITNESS WHEREOF , the parties hereto have caused this Amendment to be duly executed, as a sealed instrument, as of the date first set forth above.

SUBTENANTS:

FIVE STAR QUALITY CARE-COLORADO, LLC,
FIVE STAR QUALITY CARE-FL, LLC,
FIVE STAR QUALITY CARE-GA, LLC,
FIVE STAR QUALITY CARE-GHV, LLC,
FIVE STAR QUALITY CARE-IA, LLC,
FIVE STAR QUALITY CARE-IL, LLC,
FIVE STAR QUALITY CARE-KS, LLC,
FIVE STAR QUALITY CARE-NE, LLC,
FIVE STAR QUALITY CARE-NJ, LLC,
FIVE STAR QUALITY CARE-VA, LLC,
FIVE STAR QUALITY CARE-WY, LLC,
FS TENANT POOL I TRUST, and
STOCKTON HERITAGE PARTNERS, LLC

By:	/s/ Paul V. Hoagland
	Paul V. Hoagland
	Treasurer of each of the foregoing entities

MORNINGSIDE OF GREENWOOD, L.P., and MORNINGSIDE OF KENTUCKY, LIMITED PARTNERSHIP

By:		LifeTrust America, Inc.,
		General Partner of each of the foregoing entities

		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer

MORNINGSIDE OF SKIPWITH-RICHMOND, LLC

By:		LifeTrust America, Inc.,
		Its Member

		By:	/s/ Paul V. Hoagland
			Paul V. Hoagland
			Treasurer

	LANDLORD:

	CCOP SENIOR LIVING LLC,
	SNH CHS PROPERTIES TRUST,
	SNH NS PROPERTIES TRUST,
	SNH SOMERFORD PROPERTIES TRUST,
	SNH/LTA PROPERTIES GA LLC,
	SNH/LTA PROPERTIES TRUST, and
	SPTIHS PROPERTIES TRUST

	By:	/s/ David J. Hegarty
		David J. Hegarty
		President of each of the foregoing entities

SCHEDULE 1

EXHIBIT A

SUBLEASES

1. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-Colorado, LLC, Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

2. Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WY, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

3. Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Skipwith-Richmond, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

4. Sublease Agreement, dated June 3, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Greenwood, L.P., a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

5. Sublease Agreement, dated September 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-FL, LLC, a Delaware limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

6. Sublease Agreement, dated September 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-IL, LLC, a Maryland limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

7. Second Amended and Restated Sublease Agreement, dated November 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GA, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

8. Second Amended and Restated Sublease Agreement, dated November 6, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Morningside of Kentucky, Limited Partnership, a Delaware limited partnership, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

9. Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Stockton Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

10. Sublease Agreement, dated as of July 1, 2008, by and between Five Star Quality Care-NS Tenant, LLC, a Maryland limited liability company, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care-NS Tenant, LLC, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

11. Sublease Agreement, dated as of July 1, 2008, by and between Five Star Quality Care-NS Tenant, LLC, a Maryland limited liability company, as sublandlord, and Five Star Quality Care-NJ, LLC, a Maryland limited liability company, as subtenant as amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care-NS Tenant, LLC, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

12. Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-VA, LLC, a Delaware limited liability company, as subtenant.

13. Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord and FS Tenant Pool I Trust, a Maryland business trust, as subtenant.

14. Amended and Restated Sublease Agreement, dated as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-KS, LLC, a Delaware limited liability company, as subtenant.

15. Amended and Restated Sublease Agreement, dated August 1, 2010, but effective as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, LLC, a Delaware limited liability company, as subtenant.

16. Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, LLC, a Delaware limited liability company, as subtenant.